The Canadian economy is doing better than the US economy. Fourth quarter 2010 real GDP expanded at an annualized rate of 3.3 percent, compared to 2.8 percent for the US.
The unemployment rate is 7.8 percent compared to 9.8 percent for the US. Moreover, the budget deficit relative to GDP is lower compared to the US.
What's the secret to Canada's success?
One major factor is natural resources.
In the fourth quarter of 2010, exports, up 4 percent quarte- on-quarter, drove the growth. The exports of energy surged 17 percent to lead the way.
Canada is similar to the US in many ways. It's mostly a services-based economy and is a major global manufacturer.
Domestic consumer demand for services has been weak in the aftermath of the global financial crisis. But corporate demand globally and demand from emerging market economies have been strong -- and Canada and the US's manufacturing sector has benefited from this growth.
Where the two economies differ is natural resource , which has been enjoying a healthy demand from both developed and developing countries. In this area, Canada has received a sizable boost since the global recovery began.
In effect, the Canadian economy, unlike its US counterpart,doesn't need the consumer to jumpstart the recovery. It can latch onto the global recovery, give consumers more wealth, allow them to deleverage, and wait for domestic consumer spending to catch up.
The US, whose economy is largely based on consumer spending, does not have this luxury; it needs consumer spending to lead the way. If not, it will have to grind out a slow recovery and/or resort to fiscal stimulus.
When the fourth quarter Canadian GDP data was released at 8:30 a.m. Eastern Time, the Canadian dollar turned sharply higher against the US dollar. As of 6:30 p.m. Eastern Time, it has gained over 2 percent against the US dollar, which is a huge move in the currencies market.
For a while, as oil prices surged in response to the Middle East unrest, the Canadian dollar did not perform as well as one might expect. It's possible that traders were waiting for this GDP report to turn bullish on the Canadian dollar.
Once it confirmed what they suspected -- which is that the Canadian economy benefit greatly from oil -- they pulled the trigger.
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