More like the rest than like the US? David D. Wolf Head of Canadian Economics & Chief Strategist Merrill Lynch Canada Inc. May 2007 [email protected] 416.369.8764.

More like the rest than like the US?

David D. WolfHead of Canadian Economics & Chief StrategistMerrill Lynch Canada Inc.May 2007

[email protected]

Merrill Lynch does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.Refer to important disclosures on page 13.

Canada’s Economic & Financial Outlook

May2007

2

Key points

Theme - Canada leaning more towards stronger world than weaker USEconomy - Growth, inflation moving above US after three-year undershoot- Real GDP 2.3% ‘07, 2.6% ‘08, core inflation 2.2% ’07, 2.0% ’08Rates & FX - Canada-US rate convergence required given economic ‘cross’- CAD has borne adjustment so far, seen 1.09 – 1.14 v USD- Convergence eventually through BoC lagging Fed cuts, producing broadly steady yields & steeper curveEquities- TSX following global multiple expansion as earnings soften- Market particularly vulnerable to reassessment of risk

May2007

3

US growth, inflation shifting down

The slowdown Not just housing anymore

Source: Haver Analytics, Merrill LynchSource: Haver Analytics, Merrill Lynch

Core inflation set to ebb

Source: Haver Analytics, Merrill Lynch

Notes:

-2

0

2

4

6

8

10

97 98 99 00 01 02 03 04 05 06

US real GDP growth, q/q% saar

US real GDP growth, y/y%

-15

-10

-5

0

5

10

15

20

25

97 98 99 00 01 02 03 04 05 06 07-2

-1

0

1

2

3

4US non-farm payrolls, y/y% (RHS)

US real capital equipment investment, y/y% (LHS)

45

50

55

60

65

70

93 95 97 99 01 03 05 07-1.0

-0.5

0.0

0.5

1.0

1.5US ISM supplier deliveries (LHS, advanced 9 months)

12-month change in US core CPI y/y% inflation rate (RHS)

pp

May2007

4

But rest of the world picking up

Divergence is not new… … but it is intensifying

Source: Haver Analytics, Merrill LynchSource: Haver Analytics, IMF, Merrill Lynch

Global inflation risks skewed


Notes:

-2

0

2

4

6

8

81 83 85 87 89 91 93 95 97 99 01 03 05 07

Real GDP growth: world ex US

Real GDP growth: US

y/y%

Note: 2007 ML forecasts

80

90

100

110

120

130

03 04 05 06 07

US ISMGermany IFOJapan Tankan (expectations)

Index 2003=100

Note: Indexes standardized for base year, volatility

-2

-1

-1

0

1

1

2

China Japan Eurozone UK US

Expected change in inflation, 2007/08 vs 2006, ML forecastspp

May2007

5

Ex ante, hard to know which way Canada would lean

Top three is really top one But world matters most for export values…


… which feed domestic demand


Notes:

0

20

40

60

80

100

70 74 78 82 86 90 94 98 02 06

USUKJapan

% of total Canadian exports

-8

-4

0

4

8

81 86 91 96 01 060

1

2

3

4

5

6

7Real global growth (RHS)

Change in Canada's terms of trade (LHS)

% %

-2

-1

0

1

2

3

76 81 86 91 96 01 060

1

2

3

4

5

6Canada final domestic demand trend* (RHS)

Canada terms of trade trend* (LHS)

* - 5-year average annual % change

May2007

6

Canada is overtaking US in growth

Opening up daylight in real GDP Leading indicator divergence I


Leading indicator divergence II


Notes:

0

2.5

5

7.5

04 05 06 07

US real GDP growth q/q% saar (LHS)

Canada real GDP growth q/q% saar

Note: Q2 US, Q1 & Q2 Canada ML estimates

-4

0

4

8

12

99 00 01 02 03 04 05 06 07

Canada leading indicator (StatsCan)

US leading indicator (Conference Board)

y/y%

-6

-3

0

3

6

9

12

99 00 01 02 03 04 05 06 07

Canada leading indicator (OECD)

US leading indicator (OECD)

y/y%

May2007

7

Canada consumer fundamentals better

Recent job growth impressive Canadian incomes have accelerated


Leverage growing less quickly


Notes:

0

1

2

3

04 05 06 07

Canada employment

US non-farm payrolls

y/y%

0

1

2

3

4

5

6

7

97 98 99 00 01 02 03 04 05 06 07

US real personal disposible income

Canada real personal disposible income

y/y%

70

80

90

100

110

120

130

90 92 94 96 98 00 02 04 06

Canada household debt as a % of disposable income

US household debt as a % of disposable income

May2007

8

Actual consumption growth has slipped, but should rebound some

Canada spending trend has been stronger Soft patch in recent months…


… seems to have ended with spring


1

3

5

7

97 98 99 00 01 02 03 04 05 06 07

Canada real consumer spending

US real consumer spending

y/y%

-5

0

5

10

15

04 05 06 07

Real retail sales, 3m/3m% saar

85

90

95

100

105

110

115

120

125

05 06 07

Canada motor vehicle sales

US motor vehicle sales

Index 2005=100

Note: April 2007 ML estimates

May2007

9

Housing offers most striking divergence

Higher inventories suggest softer pricing…


Notes:

US busting, Canada leveling off


… but from less frothy levels


-60

-40

-20

0

20

40

6089 91 93 95 97 99 01 03 05 07

-20

-15

-10

-5

0

5

10

15

20Unabsorbed new home inventory (LHS, inverted, advanced six months)

12-month change in new house price inflation (RHS)

y/y% pp

80

100

120

140

81 83 85 87 89 91 93 95 97 99 01 03 05 07

US house price to rent ratio

Canada house price to rent ratio

Index 1981-2006=100

-20

-10

0

10

20

30

97 98 99 00 01 02 03 04 05 06 07

Canada real residential investment

US real residential investment

y/y%

May2007

10

Fiscal policies divergent too

Coming together H2 slowdown in public spending…


… also looks temporary

Source: Finance Canada, Merrill Lynch

Notes:


-10

-7.5

-5

-2.5

0

2.5

5

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06

Canada government financial balance

US government financial balance

% of GDP

-10

-5

0

5

10

15

20

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

Investment growth: Public sector%

Note: 1992-2006 estimated actual, 2007 intentions

-2.5

0

2.5

5

7.5

97 98 99 00 01 02 03 04 05 06 07

Canada real government consumption & investment

US real government consumption & investment

y/y%

May2007

11

Business investment trends look more like the US

Caution! Intentions also soft, energy off the boil



Notes: Softer profits, CapU the cause?

-5

0

5

10

15

98 99 00 01 02 03 04 05 06 07

Private non-residential investment, oil & gas/mining

Private non-residential investment, all industries excluding oil & gas/mining

y/y%

Note: 1998-2006 actual, 2007 intentions

-16

-8

0

8

16

24

98 99 00 01 02 03 04 05 06 07

Canada real machinery/equipment investment

US real machinery/equipment investment

y/y%

-30

-20

-10

0

10

20

30

40

50

98 99 00 01 02 03 04 05 0682

84

86

88Pretax corporate profit growth (LHS)

Industrial capacity utilization (RHS)

%y/y%

May2007

12

Inventories a key question mark

Much of the needed adjustment done in Q4 I/S ratio suggests downside…



Notes: … but BoC forecast implies a bounce

-15000

-10000

-5000

0

5000

10000

15000

20000

25000

86 88 90 92 94 96 98 00 02 04 06

Change in business inventories97C$mn

0.6

0.625

0.65

0.675

0.7

0.725

0.75

97 98 99 00 01 02 03 04 05 06

Economy-wide I/S ratio

Linear trend

Ratio

-15

-10

-5

0

5

10

15

20

00 01 02 03 04 05 06 07 08-3

-2

-1

0

1

2

3

412-month change: ISM inventory index minus customerinventory sentiment index (LHS, advanced 3Q)

12-month inventory contribution to Canada GDP growth, withimplied BoC projection (RHS)

Index pts pp

May2007

13

Real exports can’t escape US drag

Real exports depend on US demand Canada does build US houses

Source: Bank of CanadaSource: Haver Analytics, Merrill Lynch


Notes: Manufacturing overhang still to be worked off

-4

0

4

8

12

80 82 84 86 88 90 92 94 96 98 00 02 04 06-12

-6

0

6

12

18

24Canada real exports (y/y%, RHS)

US real domestic demand (y/y%, LHS)

1700

1800

1900

2000

2100

2200

2300

2400

87 89 91 93 95 97 99 01 03 05 07 091.05

1.20

1.35

1.50

1.65USD/CAD (RHS, advanced 2 yrs)

Manufacturing employment, 000s (LHS)

May2007

14

But some resilience evident near-term

Manufacturing survey bounces in Q2… … eliminating underperformance vs US


Notes: Auto sector apparently through correction


35

40

45

50

55

60

65

93 95 97 99 01 03 05 07-2

0

2

4

6

8Canada real GDP growth (RHS)

Canada BCS Composite* (LHS)

q/q% saar

* ML aggregation of BCS components using US ISM mfg weights

40

45

50

55

60

65

97 98 99 00 01 02 03 04 05 06 07

Canada BCS Composite*

US manufacturing ISM

* - Weighted and standardized to ISM methodology

-25

-20

-15

-10

-5

0

5

10

15

20

00 01 02 03 04 05 06 07-0.5

-0.4

-0.3

-0.2

-0.1

0.0

0.1

0.2

0.3

0.4Transport mfg contribution to y/y GDP growth (RHS)

Canadian car and truck production (LHS)

y/y% pp

May2007

15

Near-term bounce partly reflects ebbing regional divergences

Full convergence in manufacturing Some convergence even in job growth



Notes: Alberta house prices off the boil

-30

-20

-10

0

10

20

30

40

50

04 05 06 07

Alberta BCS production index

Ontario BCS production index

-2

0

2

4

6

8

10

04 05 06 07

Alberta employment

Ontario employment

3m/3m ann%

0

20

40

60

80

04 05 06 07

Alberta new house price inflation

Ontario new house price inflation

3m/3m ann%

May2007

16

Canada-US ‘growth cross’ comes amid already-tighter Canadian economy…

Canadian growth seen above US in 2007… … from already higher position



Notes: Labour markets levels also contrast

0

1

2

3

4

5

6

7

97 98 99 00 01 02 03 04 05 06 07

US real GDP growth

Canada real GDP growth

y/y%

ML fc

3.5

4

4.5

5

5.5

6

6.5

7

99 00 01 02 03 04 05 06 076

6.5

7

7.5

8

8.5

9

9.5US unemployment rate (LHS)

Canada unemployment rate (RHS)

% %

-4

-3

-2

-1

0

1

2

3

4

97 98 99 00 01 02 03 04 05 06 07

Canada output gap

US output gap

Canada BoC conventional estimate, US CBO estimate

% of GDP

May2007

17

… promoting inflation convergence

Headline CPI differential has narrowed Core CPI differential almost gone



Notes: Producer prices have also converged


0.5

1

1.5

2

2.5

3

3.5

4

97 98 99 00 01 02 03 04 05 06 07

Canada core inflation

US core inflation

y/y%

0

1

2

3

4

5

6

97 98 99 00 01 02 03 04 05 06 07

Canada headline CPI inflation

US headline CPI inflation

y/y%

-8

-6

-4

-2

0

2

4

6

8

97 98 99 00 01 02 03 04 05 06 07

Canada finished goods IPPI inflation

US finished goods PPI inflation

y/y%

May2007

18

Capacity pressures on Canadian inflation questionable

Productivity softer, but wages too Labour market flexibility the key?



Notes: Capital deepening should help too


-1

1

3

5

7

00 01 02 03 04 05 06 07

Business sector compensation per hour

Business sector productivity

Unit labour

cost

y/y%

225

300

375

450

66 71 76 81 86 91 96 01 06

2

4

6

8

10

12

14

Interprovincial migration (LHS, 4qma)

Unemployment rate (RHS, inverted)

000s %

0

1

2

3

4

5

70 74 78 82 86 90 94 98 02 06

Canada net fixed non-residential capital stock

US net fixed non-residential capital stock

y/y%

May2007

19

Bottom-up approach sees divergent influences

House pressure coming off… … perhaps replaced by food?



Notes: Core goods contrast with core services


1

1.5

2

2.5

3

3.5

Jan-06 Apr-06 Jul-06 Oct-06 Jan-07

CPIXCPIX food components (food ex-fruit/vegetables)CPIX excluding food componentsBoC target

y/y%

0

2

4

6

8

10

00 01 02 03 04 05 06 07

CPIX: House replacementCPIX: ShelterCPIX excluding shelterBoC target

y/y%

-3

-2

-1

0

1

2

3

4

5

6

00 01 02 03 04 05 06 07

CPI inflation, durables/semi-durables ex-autosCPI inflation, services excluding shelterBoC target

y/y%

May2007

20

Money & credit indicators a marginal worry to the upside

Narrow money suggests stronger growth Broad money has accelerated



Notes: Credit growth slower but still elevated


-3

0

3

6

9

12

15

18

21

99 00 01 02 03 04 05 06 07

-1

0

1

2

3

4

5

6

7

Real GDP (2qma, LHS)

Real M1+ (LHS, 2qma, advanced 1q)

q/q% saar q/q% saar

0

4

8

12

16

00 01 02 03 04 05 06 07

Consumer creditResidential mortgage creditBusiness credit

y/y%

0

2

4

6

8

10

12

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

M2++ money supply

Gross M3 money supply

y/y%

May2007

21

Canada inflation outlook mixed vs downside in US

CPIX likely to come down to target… … but not as fast as in the US



Notes: Reversing the recent differential


0

1

2

3

4

5

02 03 04 05 06 07 08

BoC target

ML forecastsy/y%

CPI

CPIX

0.5

1

1.5

2

2.5

3

3.5

03 04 05 06 07 08

Canada core inflation

US core inflation

y/y%

ML forecasts

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

97 98 99 00 01 02 03 04 05 06 07 08

Canada-US headline inflation differential

Canada-US core inflation differentialpp

ML forecasts

May2007

22

Canada growth, inflation rising above US

Real, nominal interest rates remain below US

Something has to give

May2007

23

So far, it’s been the currency that’s borne the brunt of adjustment…

An abrupt reversal in trend Mostly Type I?



Notes: Or Type II?


1.075

1.100

1.125

1.150

1.175

1.200

Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07

USD-CADBoC assumption range, April MPR 170

180

190

200

210

220Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07

1.075

1.100

1.125

1.150

1.175

1.200BoC commodity price index (LHS, inverted)

USD/CAD (RHS)

104

106

108

110

112

Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-071.075

1.100

1.125

1.150

1.175

1.200USD broad index (Fed, LHS)

USD/CAD (RHS, inverted)

May2007

24

… more than enough, if the US does what we expect

Stronger CAD path… … tilts down economic profile…



Notes: … even with lower rates, assuming Fed cutting


1.05

1.10

1.15

1.20

1.25

1.30

1.35

1.40

04 05 06 07 08

USD-CAD with ML assumption

USD-CAD with former ML assumption

0

1

2

3

4

5

6

7

00 01 02 03 04 05 06 07 08

Canada overnight target

US Fed funds target

%ML forecasts

-2

0

2

4

6

00 01 02 03 04 05 06 07 08-1

0

1

2

3Real GDP growth (q/q% SAAR, LHS)

Output gap (% of GDP, RHS)

ML forecasts

May2007

25

Leaving higher CA-US base case on mixed rates, steeper curve

Positive spreads seen by 2008 Canadian yields seen higher on net



Notes: A steeper curve


2

3

4

5

6

7

00 01 02 03 04 05 06 07 08

Canada 2-year yield

Canada 10-year yield

%ML forecasts

-150

-100

-50

0

50

100

150

200

250

300

00 01 02 03 04 05 06 07 08

Canada-US 2-year spread

Canada-US 10-year spread

bps

ML forecasts

2

3

4

5

6

7

00 01 02 03 04 05 06 07 08

Canada 10-year yield

US 10-year yield

%ML forecasts

May2007

26

Most confident aspect of rate forecast is Canada-US convergence

Spreads have followed inflation gap… … and jobs gap



Notes: If Fed on hold, expect convergence up


-2.5

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

97 98 99 00 01 02 03 04 05 06 07-0.8

-0.4

0.0

0.4

0.8

1.2

1.6Canada-US headline inflation y/y differential (LHS)

Canada-US 10-year yield spread (RHS)pp pp

-2

-1

0

1

2

3

4

5

97 98 99 00 01 02 03 04 05 06 07-1

-0.5

0

0.5

1

1.5

2Canada-US y/y employment growth differential (LHS)

Canada-US 10-year yield spread (RHS)

pppp

0

1

2

3

4

5

6

7

00 01 02 03 04 05 06 07 08

Canada overnight target

US Fed funds target

%Alternate scenario

May2007

27

Canadian equities have attended the global party

TSX has built on 2002-06 doubling… Concentration in high beta sectors has helped



Notes: As has M&A/private equity boom


50

100

150

200

250

97 98 99 00 01 02 03 04 05 06 07

Canada TSX Composite

World Composite (DJ)

Index Jan1/97=100

0

10

20

30

40

50

60

Canada TSX Composite US S&P 500

Share of index in low-beta sectors (consumer staples, health care & utilities)

Share of index in high-beta sectors (materials, energy and info tech)

%

0

20

40

60

80

100

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06

FDI into Canada: All other industries

FDI into Canada: Energy/mining

C$bn

Note: Four quarter moving sums shown

May2007

28

Multiple expansion has taken over as earnings flatten outTrailing earnings flat, forward earnings falling Macro factors suggest further softness



Notes: But higher valuations have more than made it up


600

700

800

900

Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07

Trailing 12-month TSX Composite EPS

2007 consensus TSX Composite EPSC$

11000

12000

13000

14000

Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-0713.0

14.0

15.0

16.0

17.0TSX Composite index (LHS)

TSX Composite FY1 P/E ratio (RHS)

-6

-3

0

3

6

9

12

85 88 91 94 97 00 03 06 09-60

-30

0

30

60

90S&P TSX trailing 12m earnings per share (RHS)

ML Canada CMI (LHS, 4qma, advanced 1Q)

pp y/y%

ML fc

May2007

29

Has abundant global liquidity made the ‘Fed model’ apply?

Earnings yields above bond yields… … leave an apparently juicy spread



Notes: Hasn’t worked in the past, but…


0

3

6

9

12

15

18

82 87 92 97 02 07

Long Canada bond yield

TSX Composite earnings yield

%

-10

-8

-6

-4

-2

0

2

4

82 87 92 97 02 07

TSX Composite earnings yield less long Canada bond yieldpp

-10

-5

0

5

10

15

20

82 87 92 97 02 07-40

-20

0

20

40

60

80TSX Composite earnings yield less long Canada bond yield (LHS)

Subsequent 12-month TSX performance (RHS)

%pp

May2007

30

Risk of adverse shift in fund flows, too

Historic underweight in foreign assets ebbing…

… in both bonds and stocks



Notes: Foreign portfolio inflows have offset, for now


10

15

20

25

30

94 95 96 97 98 99 00 01 02 03 04 05 06

Foreign assets as a % of total Canadianregistered pension plan assets

-2

0

2

4

6

8

94 95 96 97 98 99 00 01 02 03 04 05 06

Year-over-year change in foreign equities as a share of total RPP equities held

Year-over-year change in foreign bonds as a share of total RPP bonds held

pp

-18

-9

0

9

18

27

36

93 95 97 99 01 03 05 07-35

0

35

70Foreign purchases of outstanding Canadian equities* (LHS)

TSX Composite Index (RHS)

C$bn y/y%

* - 12 month rolling sum

May2007

31

Canada among markets vulnerable to reassessment of risk

Volatility is low… … and risk appetite is high



50

100

150

200

250

300

350

400

450

97 98 99 00 01 02 03 04 05 06 07

Chinese equities (DJ Shanghai Composite Index)

8

16

24

32

40

48

97 98 99 00 01 02 03 04 05 06 07

S&P VIX Index

Lowered risk premiums – the apparent consequence of a long period of economic stability –coupled with greater productivity growth have propelled asset prices higher… this vast increase in the market value of asset claims is in part the indirect result of investors accepting lower compensation for risk. Such an increase in market value is too often viewed by market participants as structural and permanent. To some extent, those higher values may be reflecting the increased flexibility and resilience of our economy. But what they perceive as newly abundant liquidity can readily disappear. Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher asset prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of low risk premiums.

- Alan Greenspan, Reflections on Central Banking, August 26, 2005

May2007

32

Key economic & financial forecasts

Q106 Q206 Q306 Q406 Q107 Q207 Q307 Q407 2005 2006 2007 2008Real GDP (q/q % ann) 3.8 2.0 2.0 1.4 2.7 2.8 2.1 1.9 2.9 2.7 2.3 2.6

Consumption 5.4 3.7 5.1 3.1 2.2 4.0 3.4 3.6 3.9 4.4 3.6 3.5Government 4.0 4.4 2.0 1.8 3.2 3.8 4.4 4.4 3.2 3.8 3.3 4.2Housing Investment 13.1 -4.7 -6.9 0.3 -3.0 -2.0 -4.0 -4.0 3.2 2.4 -3.0 -3.6Business Investment 10.1 6.9 9.4 6.0 3.4 4.1 3.8 3.8 9.4 9.2 5.0 4.8Exports -4.8 -1.3 3.5 4.8 3.0 1.0 0.0 1.0 2.1 1.4 2.2 2.1Imports -1.9 9.0 5.1 -0.6 -2.0 6.0 5.0 5.0 7.1 5.2 2.6 5.6Inventory (C$bn) 11.0 18.1 13.9 1.0 -5.0 -2.0 0.0 0.0 15.5 11.0 -1.8 3.4Final Dom. Demand 6.1 3.7 4.0 3.0 2.8 3.6 3.2 3.3 4.3 4.5 3.3 3.3

CPI (y/y%) 2.4 2.6 1.7 1.3 1.8 2.0 2.4 2.9 2.2 2.0 2.3 2.1CPI-X (y/y%) 1.7 1.8 2.1 2.2 2.3 2.3 2.1 2.0 1.6 1.9 2.2 2.0Overnight Target (eop. %) 3.75 4.25 4.25 4.25 4.25 4.25 4.25 3.75 3.25 4.25 3.75 4.502-yr GoC 3.99 4.40 3.91 4.02 3.98 4.25 4.15 4.00 3.85 4.02 4.00 4.6010-yr GoC 4.26 4.58 4.00 4.08 4.11 4.25 4.20 4.20 3.98 4.08 4.20 4.80USD-CAD 1.17 1.12 1.12 1.17 1.15 1.17 1.20 1.18 1.16 1.17 1.18 1.12TSX Composite 11,272 12,908 12,900 13,200TSX EPS 603 750 735 790

Memo:US GDP 5.6 2.6 2.0 3.5 1.3 2.0 2.0 2.0 3.2 3.4 2.0 2.6US Core CPI (y/y %) 2.1 2.5 2.8 2.7 2.5 2.3 2.0 2.0 2.1 2.5 2.2 1.9Fed Funds (eop. %) 4.75 5.25 5.25 5.25 5.25 5.25 4.75 4.25 4.25 5.25 4.25 4.002-yr UST 4.82 5.16 4.71 4.82 4.58 4.55 4.35 4.15 4.40 4.82 4.15 4.2010-yr UST 4.85 5.15 4.64 4.70 4.65 4.50 4.30 4.20 4.39 4.70 4.20 4.45EUR-USD* 1.21 1.28 1.27 1.32 1.34 1.34 1.33 1.33 1.18 1.32 1.33 1.29USD-JPY* 117 115 118 119 118 114 107 107 118 119 107 97S&P 500** 1248 1418 1590 --S&P 500 Operating EPS 76.5 87.7 93.0 97.0*ML FX Strategy Team; **12-mth fwd; Shaded regions represent ML forecasts; Source: Merrill Lynch, Haver Analytics, CPMS

Quarterly Annual

May2007

33

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Important disclosures

More like the rest than like the US? David D. Wolf Head of Canadian Economics & Chief Strategist Merrill Lynch Canada Inc. May 2007 [email protected] 416.369.8764.

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