Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Wednesday, October 19, 2005

Is the Dutch Disease Coming to Canada?

From Steve Poloz at Export Development Canada:

In theory, Dutch disease can be contracted by any economy that produces a key resource and has a manufacturing sector, too. Suppose the world price of the resource shoots up, causing the sector to boom. This will generally cause the economy’s currency to appreciate, putting stress on the manufacturing sector. Something like this happened to the Netherlands in the 1970s when energy prices jumped and the Dutch guilder rose – hence the name of the illness.

Obviously, the current situation has the potential to inflict Dutch disease on Canada. Oil prices have ratcheted higher in the past year, boosting the Canadian dollar into the mid-80s against the U.S. dollar. While high oil prices benefit some exporters – producers of petroleum, oil and gas equipment, energy exploration companies and engineering firms – others receive fewer Canadian dollars for each U.S. dollar export sale.
Steve concludes:

Symptoms of Dutch disease are beginning to appear, with profit margins expanding in the energy sector and contracting in a number of manufacturing sub-sectors. What happens next depends on how long the stresses last – and that all depends on energy prices.
As a sinecured consumer, I'm happy to see the Canuck buck appreciate. My friend, Jeff, who exports manufactured goods to the US, does not share my perspective.
Who Links Here