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opinion

Canada's economic rebound out of recession has run out of steam. Canadian real GDP posted a meagre 1 per cent annualized rate of growth in the third quarter, the economy recorded a record high trade and current account deficit of 4.2 per cent of GDP, and job creation virtually ground to a halt in the last quarter. And this despite government efforts to stimulate the economy through infrastructure spending - which is scheduled to soon end.

For a change, the U.S. economy outpaced Canada's, advancing at a 2.5 per cent annual rate in the third quarter of 2010. Nonetheless, both output and employment in Canada are above their previous peaks in 2008.

In many respects, however, the U.S. economy is in worse shape than Canada's.

Despite growing substantially stronger than Canada's economy in the third quarter, the U.S. has restored only two-fifths of the jobs it lost during the downturn, the unemployment rate was 9.8 per cent in November, and a broader measure of unemployment, which includes discouraged workers and involuntary part-time work, was 17 per cent.

Moreover, it has required the application of extraordinarily hefty fiscal and monetary policies and corporate bailouts to keep the American economy growing.

The U.S. government's fiscal deficit is enormous, and proportionately as steep as the deficits of Ireland and Greece, countries that are experiencing great difficulty in funding their deficits. As of October, the U.S. government was running a $1.26-trillion budget deficit.

On the monetary policy side, because interest rates were virtually zero, the Federal Reserve has had to turn to new, rather untested policies to keep the U.S. economy growing. Thus, the Fed began a second round of quantitative easing with the intent of purchasing $600-billion of long-term Treasury securities over an eight-month period.

Given the recent slowdown in Canada's economy and the U.S. economy's apparent doldrums, is there cause for Canadians to worry? To quote Sarah Palin, "you betcha!"

• While Canada has replaced all of the jobs lost from the recent downturn, we still have some distance to go in terms of lowering the unemployment rate and providing a healthier jobs outlook.

• When the Canadian economy was shedding jobs (October of 2008 through July of 2009), we lost 496,000 full time jobs, while part-time jobs increased. To date, only 74 per cent of the full-time jobs lost before the summer of 2009 have been restored.

• There is a significant disconnect between the job prospects of younger Canadians and older ones. In November, the national unemployment rate was 7.6 per cent, while the unemployment rate for those between 15 and 24 was 13.6 per cent. While roughly half of Canada's job losses between October of 2008 and July of 2009 were young people, there has been no recovery in youth employment.

• It's more than a bit surprising that, in an environment of soaring commodity prices, Canada's current account deficit should escalate as high as 4.2 per cent of GDP, its worst showing since the mid-1970s. Current account deficits of this magnitude make it very difficult for Canada's economy to grow. With the trade and current account deficit escalating at an alarming pace, Canada's international debtor status also becomes a concern.

The Bank of Canada, which recently commended our financial system, suggests that most of the risks at this time are external. Nonetheless, it's correctly concerned that household indebtedness is too high. Such debt, in fact, has increased to 14.5 per cent of disposable income as Canadians have taken advantage of super-low interest rates to purchase homes and other consumer items on credit.

This rather high level of indebtedness would be fine if the economy were expanding at a decent pace and strong jobs growth could be counted on. But there are clear grounds for worry on many tacks, including the future growth rate of the economy and the pace of future job creation.

Indeed, as badly off as U.S. households are as a result of the Great Recession, they have sharply increased their personal savings out of disposable income and have in rather short order reduced their indebtedness back down to Canadian levels.

What's missing from the Canadian scene is a substantial growth in jobs creating investments in manufacturing and new technologies, as well as growth in exports. The business community has been sitting on cash and not been investing sufficiently in new plant and equipment. Canadian business must also take advantage of export opportunities in those areas of strong economic growth such as China, India, Brazil and Germany.

Only when such opportunities are fully exploited by Canadian business will there be enough jobs for Canadians and for youth to gain their rightful opportunities to participate in our economy.

Arthur Donner is a Toronto-based economic consultant. Doug Peters is a former chief economist of the Toronto-Dominion Bank.

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