Most Canadian exporters managed to keep their heads above choppy waters in 2005, but the coming year will be more difficult with a greater number of threatening squalls, analysts say.

Many of the problems facing the export sector will last well into 2006, with a few new ones piling on as well:

* The long-running softwood lumber dispute with the United States - perhaps the largest of several nasty international trade tiffs to rock Canadian firms in 2005 - has no obvious end in sight.

* The muscular loonie, which has jumped by a remarkable 30 per cent in the past three years, makes exports more expensive and shows no sign of weakening. Some experts say it might even pop above 90 cents US in the coming months.

* Competition from exports out of fast-growing India and China can only intensify.

* Prices will remain high for Canada's most popular commodities - especially energy - which is good news for Alberta's oilpatch but tough for many other industries that are heavy energy users.

* And, just to add a new twist for 2006, fears are beginning to grow that a slowdown is coming in the mighty United States economy - far and away Canada's largest trading partner.

"I think next year is going to be a tough year," says Jay Myers, chief economist with Canadian Manufacturers and Exporters.

And the year following that isn't looking so hot, either.

Global demand should still be strong in 2006, kept up in part by a reasonably healthy American economy. But 2007 could show a growing decline, warn analysts at TD Bank.

In a recent forecast, they predicted world economic growth will likely average about 4.3 per cent this year, slowing slightly to average 4.2 per cent in 2006 and to four per cent in 2007.

South of the border, the U.S. economy should expand by an average 3.6 per cent in 2005, cooling a bit to 3.5 per cent in 2006 before dropping dramatically to a 2.6-per-cent growth rate in 2007.

Even as companies struggle to maintain their immediate bottom line, they must also focus more resources on planning for a future that will be very different from their past, says Myers.

They must grapple with such long-term issues as an aging workforce, the accelerating pace of technological change and rising Asian competition.

"How do you make those long-term strategic choices at the same time as trying to make ends meet on a day-to-day basis?" Despite all the headwinds that faced exporters in 2005, some companies showed surprising resilience to the continued strong dollar. Near year-end, the currency flirted with highs above 86 cents US, making Canadian products more expensive on the global market.

Still, they continued to sell enough products to push Canada's balance of trade with the rest of the world to near record highs during the year.

"I think the biggest trade story of 2005 was, 'Why did we do so well in the face of such a strong dollar?' " said Myers.

"We've seen strong gains in goods and services exports even though all the economists say a 30-per-cent appreciation of the dollar should put us in a hole."

At the end of the third quarter, the country's current-account surplus with the rest of the world, on a seasonally adjusted basis, increased $4.4 billion to $9.3 billion - the third-largest surplus ever, according to Statistics Canada.

Much of the boom in exports is attributable to robust world demand for the country's resource riches, especially oil and natural gas that set record high prices in 2005.

Yet sales of goods and services also showed healthy gains - surprising some, given the consistently strong dollar.

The high loonie did make imports of new equipment and machinery less expensive, allowing business investment and productivity to rise in 2005.

That also carried a steep human price. Productivity increased this year partly due to the loss of thousands of manufacturing jobs.

Restructuring in the auto sector is far from finished, but already more than 3,600 jobs are to be cut at General Motors Canada over the next two years and Ford is also reportedly considering shuttering several North American plants, which could cost thousands of Canadian jobs.

That's raising loud questions about whether the sector can survive and, if so, in what form?

Meanwhile, sluggish demand for paper products coupled with higher energy prices have also led to thousands of layoffs in that sector in 2005, with no end in sight.

Near the end of the year, Abitibi-Consolidated Inc. announced plans to close newsprint mills in Kenora, Ont., and Stephenville, Nfld., cutting 672 jobs.

That followed previous plans to cut capacity and slash jobs.

The loss of manufacturing jobs, which have often been high-paying and relatively stable, suggests Canada is drifting back to the days it relied mainly on volatile natural resources as its economic base, warns Jim Stanford, economist with the Canadian Auto Workers.

"The real story (of the economy) is bubbling under the surface," said Stanford. "We're back to being hewers of wood - and drawers of oil."

Another 100,000 manufacturing jobs could be lost in the coming year as companies struggle to cope with rising energy costs, cutthroat competition from China and the soaring dollar, says Stanford.

"There's a major structural change developing in the Canadian economy ... we're taking capital and labour out of manufacturing and moving it into the oilpatch."

The loonie remains a serious risk to economic growth, especially if it does go above 90 cents US, which some analysts are predicting for 2006.

It won't likely stick that high, but if that were to happen it would wreak havoc in the manufacturing and export sector, says Marc Levesque, chief fixed-income strategist at TD Securities.

"As long as the Canadian dollar remains close to current levels (of about 85 cents US), I think the overall trade picture will continue to strengthen," he said.

The loonie flirted with an intraday high of 87.50 cents US in mid-December before heading back below 85 cents US.

Some argue that cooler energy prices in 2006 will take some of the foam off the dollar, which closely tracks oil prices.

Despite all the turmoil, manufacturing will likely add more to Canada's overall GDP growth next year - likely to average about three per cent - than it has in recent years, says Levesque.

"You're going to seen an improving trade picture over 2006."

That doesn't mean anyone is expecting an end to Canada's high-profile trade dispute with the U.S. over softwood lumber - a war that broke out almost four years ago and threatens roughly $10 billion in annual exports.

Angry words were thrown back and forth across the border in 2005 as both countries won cases over softwood lumber exports at global trade panels.

But in August, Canada argued it won the most important of all battles - a extraordinary dispute panel under the North American Free Trade Agreement.

Ottawa argued that the panel was set up to be the ultimate authority in any dispute among NAFTA partners.

However, Washington said a ruling in its favour at the World Trade Organization was more important.