The stronger loonie will continue to be a drag on exports through the better part of 2004, but today’s economic data shows the currency situation is not a “catastrophe,” says a report by TD Bank Financial Group.

Marc Lévesque, assistant vice president and senior economist, says the surge in the value of the Canadian dollar may have taken a significant bite out of economic growth, “but this morning’s merchandise trade and manufacturing reports confirm yet again that the impact is nowhere near the full-blown disaster that some had come to expect.”

Lévesque was commenting about reports today that showed the value of Canada’s exports recorded an unexpectedly large 3.6% burst in December. That, together with imports posting a more modest 0.7% gain, put Canada’s merchandise trade surplus at $5.4 billion – almost $1 billion above November’s reading.

“And, although there are some caveats to be found in the details of the report, the shine on the data remains no matter which way it is diced and shredded up.”

He noted that while the resumption of auto production on a number of temporarily closed auto assembly lines provided a big boost to exports in that sector, the value of exports was still up by 2.4% excluding motor vehicles. Similarly, he said, while higher prices for base metals and natural gas boosted export values in those sectors, rising export prices played only a small role in the overall tally, with export volumes up by 3.3% during the month.

“And, importantly, while the snap back from the August power outage was an important part of the equation – which does skew the fourth-quarter picture – export volumes for the October-December period as a whole rose at a 17.5% annualized pace.”

The result is that net trade will register as a positive entry in the accounting of fourth-quarter GDP – adding close to a full percentage point to GDP growth.

“All in all, Canadian exporters may still be struggling with the competitive fallout from the loonie’s flight, but the combination of strong U.S. economic growth and rising commodity prices is clearly helping to cushion the blow,” Lévesque said.

RBC Financial Group economist Allan Seychuk said the trade surplus figures show that exports “seem to be gaining traction despite the rise in the Canadian dollar, highlighting that the strength of U.S. domestic demand trumps exchange rate effects.”

“Until now, that point was relegated to the ‘interesting facts from economists’ file and ignored, but it happens to be true and we’re hopefully seeing the start of Canada’s response to runaway U.S. growth,” Seychuk said in a report.