Interest rate cuts are still in the way, despite bullish numbers for the Canadian economy in December, says CIBC World Markets.

Economist Avery Shenfeld says in a report Friday that December will come to the rescue of what had been a “very anaemic” fourth quarter for the Canadian economy. The nominal trade surplus for the quarter was still about $2 billion lighter at annual rates than in the third quarter, resulting in a slightly less robust current account balance.

But, he said, with prices for Canadian exports showing little recovery in December, the reports don’t counter our view that exporters are suffering from a margin squeeze. “The overall quarterly growth rate is still shy of the Bank of Canada’s last forecast of 4%, so rate cuts are still on the way.”

Shenfeld said that in real terms, “exports nicely outpaced imports, with both figures elevated by the depressing effect on Q3 activity from August’s extended power outage in Ontario. The 1.0% manufacturing shipments gain in December won’t entail as much in output, since part of its was delivered by a drop in inventories. We estimate that nominal factory production was up 0.6% in the month. Note that after October-November disappointments, it’s going to take a healthy GDP gain for December for quarterly growth to poke very far above 3%.”

Shenfeld said that “having slept through the roaring party taking place next door,” the Canadian economy posted a 3.6% gain in exports in December and a nearly $1 billion increase in the trade surplus. The strength of the loonie had, to this point, he said, provided an offset to the U.S. economic boom, leaving Canadian exports in decline.

The December pick-up left nominal exports down 3.2% from a year earlier, with prices off 9% over that period as goods sold in U.S. dollars are translated into fewer and fewer loonies. Canadian businesses, Shenfeld said, are shipping the goods, but not earning a lot for them in Canadian dollar terms.

He noted that December’s export gains were broadly based, led by an 8% advance in autos. That coincided with a huge month for December U.S. auto sales, but January figures showed that Americans were much less active in car shopping last month. Automotive and industrial goods/materials are the only two export categories that are higher than a year ago. The export gains also showed up in manufacturing shipments data released today, which registered a 1.0% gain, and in strong orders for the factory sector in December.

Imports rose a more modest 0.7%, held back by a decline in non-auto consumer goods. As a result, the trade surplus widened to its fifth best level in the last two years.

“ The combination of healthy Canadian trade data and a worse-than-expected US trade deficit drove the C$ up sharply, and was a bit of a negative for the front end of the yield curve,” he said.