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42 ■Bank of Montreal Group of Companies Annual Report 2000
Canadian and U.S. Economic and Financial Services Developments in 2000
Canada’s economy remained strong in 2000, likely growing close to 5%. Domestic demand was
led by surging business investment in computing equipment. Consumer spending remained
healthy, buoyed by rising incomes. Exports scaled new heights, benefiting from strong U.S.
demand and a low currency. The jobless rate fell to a quarter-century low in the summer.
Despite firmer labour markets, underlying inflation remained tame. The Bank of Canada
has been inactive after raising rates by 125 basis points from November 1999 to May 2000.
The Canadian dollar, though softening against the U.S. dollar, has strengthened against most
other major currencies.
In this favorable macroeconomic environment, the demand for loans by Canadian businesses
and households has gained pace in fiscal 2000. Particularly large increases occurred for business
loans in excess of $5 million and for leasing receivables. With respect to households, strong growth
in purchases of durables —such as cars, furniture and appliances —led to an acceleration of
consumer loans (excluding cards) and continued very large growth in card balances. Rising
employment and healthy gains in personal and business income kept loan quality at a high level.
The U.S. economy accelerated in 2000, with real GDP growth likely topping 5%. Rapid growth
in jobs and incomes spurred consumer spending. Business investment in communications
and computing equipment soared in the year. The lengthy expansion —now in its tenth year —
reduced the unemployment rate to a 30-year low. Although tight labour markets have boosted
wages, soaring productivity and intense competition have held underlying inflation in check.
The Federal Reserve Board has remained inactive after lifting rates by 175 basis points from
June 1999 to May 2000. Loan growth and quality remained high in fiscal 2000.
Economic and Financial Services Outlook for 2001
More moderate gains in equity markets are projected to slow the U.S. economy to a pace of 3.0% next year.
With the economy growing modestly, the jobless rate should edge higher. Short-term interest rates are expected
to remain stable while longer-term interest rates will likely rise modestly. Past increases in interest rates
will dampen business investment and purchases of consumer durables, slowing the forward momentum of loans.
While loan quality should remain good, the ratio of loan loss provisions to outstanding loan balances could
rise moderately from current low levels as slower growth in sales and incomes exerts pressure on some highly
leveraged businesses and individuals.
Past increases in interest rates alongside softer U.S. demand will slow the Canadian economy in 2001, albeit to
a still-solid pace of 3.5%. The unemployment rate should remain stable. Inflation will likely decline as a result
of spare economic capacity, stronger productivity growth and moderating energy prices. Interest rates are expected
to remain fairly stable. The Canadian dollar should recover from recent weakness against the U.S. dollar amid
supportive Canadian trade flows. We expect household and business loan growth to soften. Loan quality should
generally remain good.
Highlights
■Economic growth in Canada and the United States is expected to slow in 2001
■Interest rates are expected to remain steady in the United States and in Canada
■The Canadian dollar is expected to strengthen against the U.S. dollar
Economic and Financial Services Developments
Annual Growth in Gross
Domestic Product (%)
Forecast
1999 2000*2001*
Canada 4.5 5.0 3.5
United States 4.2 5.1 3.0
*Estimates for the year ending December 31
Unemployment Rate
(annual average)
Forecast
1999 2000 2001
Canada 7.6 6.8 6.8
United States 4.2 4.0 4.3
Canadian and U.S. 
Unemployment Rates (%)
7.9 8.2 7.6 7.1 6.8 6.8
3.9
4.0
4.1
4.34.3
4.3
Jan
99
Apr
99
Jul
99
Oct
99
Jan
00
Apr
00
Jul
00
Oct
00
Canadian unemployment rate
U.S. unemployment rate
6.8 6.9
4.0 3.9
Canadian and U.S. 
Interest Rates (%)
4.7 4.8 4.8 4.8 5.0 5.5
6.0
5.6
5.2
5.0
5.1
5.3
Jan
99
Apr
99
Jul
99
Oct
99
Jan
00
Apr
00
Jul
00
Oct
00
Canadian Bank Rate
U.S. Federal Fund Rate (effective)
6.0 6.0
6.5 6.5
U.S./Canadian Dollar 
Exchange Rates ($)
0.66 0.67 0.67 0.68 0.69 0.68
Jan
99
Apr
99
Jul
99
Oct
99
Jan
00
Apr
00
Jul
00
Oct
00
0.68
0.66