Canada's Quiet Economic Strength

In the past year, distance from the U.S. has proved a great insulator from economic pain. China and Australia, literally on the other side of the globe, are humming along, while Mexico is suffering from a decline in U.S. imports. But our NAFTA neighbor to the north, Canada, has emerged from the morass in better shape than any developed economy. Since its brief recession ended this summer, Canada has been creating jobs (31,000 in September). The Canadian dollar--the loonie--is soaring against our dollar. "There is a buzz in Canada right now, which is as far apart as you could ever be from what's happening south of the border," said David Rosenberg, chief economist of Toronto-based asset manager Gluskin Sheff. 

While housing prices in Canada grew exuberant, lending standards never did. Canadian home buyers had to make down payments, funky interest-only loans were nowhere to be seen, and banks kept their leverage ratios in check. The result: mortgage default rates have been low, and no large Canadian bank has failed. The World Economic Forum ranks Canada's as the world's most sound banking system. And while exports of manufactured goods to the U.S. have been hit, Canada's huge resource industries--oil, natural gas, agriculture, metals--have benefited from China's continued growth. The exposure of Canada's economy to the commodity sector is three times more intense than America's. Add in robust capital inflows and a recovering housing market, and, strange as it seems to say, Canada is hot.

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