Coevolving Innovations

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Canadians are less miserable

Japan would seem to be a wonderful place to live, socially and economically. Merrill Lynch ranks Canadians as #2 in the G7. Here’s a summary that I’ve put together from news sources.

  Misery index (2007) Misery index (2005)
Japan 1.6 < 3.2 (inferred)1
Canada 6.4 7.1
Germany 6.5 > 6.5 (inferred)1
Italy 13.9 15.4
France 15.2 14.7
United States 17.3 17.9
Britain 19.6 17.6

John Partridge, in the Globe & Mail, explains how these numbers are calculated:

The lower the number, the better off you are, according to the Merrill index, which measures the economic and social costs for G7 countries, based on their ….

  • consumer price index,
  • unemployment rate,
  • real gross domestic product,
  • fiscal budget balance,
  • current account and
  • three-month treasury bill rate.

The Merrill Lynch study was first published in 2005 as an international index. For those more interested in an longitudinal view, there’s a U.S. Misery Index based just on employment and inflation. Wikipedia traces the U.S. version back to economist Arthur Okun.

I’m not going to make a dissertation out of this, but given that the services sector is such a large part (e.g. 70% to 80%) of the economy, I wonder if including GDP — that undercounts the services economy — into a misery index really makes sense.

When business people think of international economics between Canada and the U.S., they still think primarily goods. Partridge cites the Merrill-Lynch economist:

“Our strategists remain cautious about the Canadian economy and the [Canadian dollar], given its degree of exposure to the downturn in the U.S. economy,” Mr. Rosenberg said. “But these index readings suggest that the traditional U.S.-flu Canada catches when the U.S. sneezes may be milder than what we have seen in the past.”

Will Canadians really catch an economic flu? Foreign Affairs and International Trade Canada provides a snapshot of services trade.

  • Canada is among the largest services exporters in the world. In 2005, Canada was the 15th largest services exporter in the world.
  • Cross-border exports of services totalled $65 billion in 2005, representing about 12.5 percent of Canada’s exports. At the same time, Canada imported $78.7 billion of services.
  • Our services exports are less dependent on the U.S. market than is the case for our goods exports, and our fastest-growing export markets are elsewhere. Between 1990 and 2004, for example, commercial services exports to Brazil grew by 23.5 percent annually; and to China by 16 percent.

In Canada, there’s a better story for knowledge workers than for blue collar workers:

  • Commercial services exports are the most important and fastest growing sector of services exports for Canada. Creating high-paying jobs in knowledge-intensive industries such as architecture, engineering, research and development services and financial services. [sic]
  • In 2005, commercial services accounted for 54 percent of services exports and 48 percent of services imports — the largest share of Canada’s services trade.

Canadians are low on the Merrill Lynch index for 2007. Even with our strong Canadian dollar — and especially if you’re an educated business professional in this country — I don’t see how we could even approach the levels of socio-economic misery in the U.S. and Britain, anytime soon.


1 I can’t see to find a formal announcement of the misery index by Merrill Lynch, but there’s a release by Bloomberg appearing on The Financial Express in India that gives some more hints.

1 Comment

  • As a full time currency trader based in the UK and working for myself, I thought I would add my thoughts to your post. I trade the USD/CAD pair a great deal and have studied the Canadian economy in detail, so I hope the following is useful. Six years after it hit an all time low in 2002 the Canadian dollar has since gained almost 40% against the US dollar and the question everyone is asking is whether this trend will continue, and if so for how much longer. On the economic front, the data presented by the Bank of Canada has continued to indicate a slowdown in growth particularly in the manufacturing sector. Canadian job prospects remain good, which would suggest that the economy is resilient at present to any slowdown. However, with the possibility of a full recession in the US, then further slowing of the Canadian economy is inevitable. In recent months the combination of favourable inflation figures and evidence of weaker growth will, I believe, encourage the Bank of Canada to cut interest rates to follow those in the US, but that these cuts will be small to avoid the possibility of increasing inflationary pressures in the economy. Overall, I believe that the Canadian dollar is unlikely to weaken sharply against the US dollar, but the current position of parity may be difficult to sustain in the longer term and a move back to around 1.10 or 1.15 would seem the most likely target. If resistance is penetrated at 1.15 then the Loonie could weaken further.


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