The Globe and Mail’s Heather Scoffield asks whether or not Canada is suffering from the ‘Dutch disease’:

High oil, high dollar and Dutch disease (subscription req'd): The term Dutch disease was coined in the 1970s to describe Holland's experience with the discovery of natural gas in the North Sea. The sudden gas revenue drove up the guilder. Other non-energy exports began to suffer, especially manufacturing. Unemployment soared…

But is Canada really stricken by Dutch disease and are we heading for a slump?
Obviously, the Bank of Canada doesn't think so, as witnessed by this month's hike in interest rates and recent comments by Mr. Dodge and other bank officials.

The exchange rate bottomed out at around 0.625 USD in January, 2002, and since then, it’s gone up by over a third to trade at 0.85 USD in recent days. Should the Bank be worried?

Let’s look at the symptoms:

• Manufacturing hours have held steady at around 85m hrs/week since January 2002, the same level we saw in the 24 preceding months.
• Exports of finished goods in 2004 were 5% higher than they were in 2001, when the CAD was trading under 0.65 USD.
• Unemployment is at 6.8%, a level we haven’t seen in a more than a generation.
• The employment rate is around 72.5%, just under the record of 72.7% set last year.

So no, Canada doesn’t have the Dutch disease. But at 0.85 USD, the exchange rate is now above the IMF estimates for the purchasing power parity (PPP) rate. David Dodge may want to keep a box of tissue handy.

[April 2006 update: Still no sign of Dutch disease]