Canada’s merchandise trade surplus grew to $4.5 billion in December, its highest level since June 2001. Economists quibble over whether recession was averted in Canada, but agree that the Bank of Canada will sit on its hands for awhile.

The surplus grew as exports dropped 1.2% from November to $32 billion, thanks to imports, which dropped more. Imports fell by 1.8% to $27.5 billion, so the net effect on the trade balance was positive.

RBC economists note that, “The underlying trend in world growth is still weak, though, with the value of merchandise exports in Canada’s three largest exporting sectors – machinery and equipment, automotive products, and industrial goods and materials — falling by a combined total of almost $475 million, suggesting that manufacturing sector growth will continue to be rocky in the first part of this year until U.S. demand accelerates.”

BMO Nesbitt Burns says that Canada’s merchandise trade surplus for December “was a classic good news/bad news story”. The good news was the wider surplus. “The bad news was that November was revised down to $4.4 billion (from $4.6 billion), and that exports fell 1.2% in the month.” For the year as a whole, the surplus hit a record $62.6 billion, BMO notes. “This was achieved despite the fact that exports fell 2.2% last year, the first full-year drop since 1991, during the previous U.S. recession.”

“With the last official trade report for 2001 now behind us, Canadian exporters can start to look forward to what they hope will be brighter economic prospects throughout the globe,” says CIBC World Markets. “With the US economy showing tentative signs of life, exporters have been able to put the brakes on what had been rapidly eroding trade fortunes. All told, a surge in consumption probably won’t be enough to rescue headline GDP, where a tiny fourth quarter decline is expected.”

“While December’s surplus was below the average for 2001, it was still the largest since June, and shows that trade remained surprisingly resilient late last year, even as the U.S. economy and commodity prices troughed. A rock-bottom loonie certainly played a role,” concludes BMO.

RBC Financial Group economists say that today’s data means that the Bank of Canada is finished cutting rates and will keep to a steady profile for much of this year. These releases also underpin hopes for a stronger dollar in the weeks ahead.

CIBC says, “Q4 might have been an outstanding quarter for retailers, but with a decisively below-potential expansion on tap for the first half, the Bank will be extremely hesitant to launch into an early retightening.”