Australia has benefited tremendously over the last 10 years from the explosive growth of the Chinese economy and the worldwide commodities boom. This fortunate combination of factors has helped exporters of materials such as coal, uranium, aluminum and gold. Although Australia has enjoyed economic prosperity over the last few years, contrarians can’t help but ask: how long is it going to last? Sometimes it helps to take a look at countries in a similar circumstances.

Canada is one country that has a lot in common with Australia. Even though it is situated on the other side of the globe, there are many similarities between the two countries. One of them is the fact that they are former British colonies and the official language is English. The other similarity is that both have vast, scarcely inhabited territories, and both were blessed with abundant natural resources. Over the past decade share investors in both Canada and Australia have received an average annualised return of 10%.

Booming commodities prices have fueled a resources boom in both countries but in different ways. Australia’s major trading partners are China, Japan and the US. Canada trades mostly with the US, China and the UK. Both Australia and Canada trade predominantly with the largest two economies in the world – the US and China, although in different proportions. Canada is more dependent on the USA, while Australia is more dependent on trading with China.

Almost 70% of the Canadian exports are destined to the US, which would lead one to suspect that the Canadian economy has gone through the same ups and downs as the beleagured US economy. Quite the contrary: the US downturn hasn’t spilled over to its closest neighbor, Canada, as yet.

Canadians export a significant quantity of oil and timber to the US.  Although the Canadian timber market was adversely affected by the slowdown of the US housing market, the slowdown in timber was buffered by the unquenchable US thirst for oil. Many people don’t know that Canada is the number one exporter of oil to the US, followed by Saudi Arabia, Mexico and Venezuela. Furthermore, Canadian oil exports are double the amount of oil exported by Saudi Arabia. If you’ve watched the crude oil chart over the last few years, it is easy to understand why the Canadian economy has been on an upward trajectory.

Canadians steered away from the reckless lending practices that undermined the sub prime mortgage crisis, and their banking system survived the financial storm of the last couple of years pretty much unscathed.

The weakness of the US dollar has also been beneficial for Canada. It has driven commodity prices higher and has kept imported goods from the US (Canada also imports as much as 60% from the US) cheap.

Over the past 16 years ago, the trade between Canada and Mexico has tripled. Today, Canadians have also benefited from cheap imports from Mexico and also cheap seasonal labor provided by Mexican migrant workers.

Canadians, just like the Australians, are heavily reliant on their service industry, to the extent that about 70% of their GDP comes from services. The Canadian retail sector has the biggest weight, followed by the banking and tourism.

Just like Canada, Australia relies heavily on services, which is a good thing because we all know that natural resources are not going to last forever. Furthermore, the resource sector is the kind of sector that requires heavy investments but in the end employs only a few people; therefore, most people participate only indirectly in the boom of this sector by catering to miners or purchasing shares. This is why a slowdown of the economies of China, Mexico and the USA should only have a modest effect on the Canadian economy.

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