Washington — Finance Minister Jim Flaherty said he's “concerned” about rising unemployment rates around the world, although he stopped short of saying there's anything more governments can do to reverse the deterioration of the labour market at this time.
The subject is a point of discussion at a meeting of finance ministers from North, Central and South America Friday in Vina del Mar, Chile.
Those countries, led by the United States and Canada, have collectively poured billions into infrastructure projects and other programs in an effort to replace the hundreds of thousands of jobs that have vanished as a result the financial crisis.
So far, the government spending has achieved meagre results.
Payrolls in the U.S., for example, declined by 467,000 in June, pushing the unemployment rate in the world's largest economy to 9.5 per cent, the highest in almost 26 years. The figures, which were released Thursday, caused stock markets to tumble on concern the global recession would drag.
“We're all concerned about it,” Mr. Flaherty said of rising unemployment on a conference call from Chile. “The recovery from recession will happen before the reduction in unemployment.”
History shows that companies are slow to rehire after an economic downturn because they wait for signs the rebound is in full force before adding staff.
The risk facing policy makers such as Mr. Flaherty now is that unemployment rates won't fall as quickly as in the past because most indicators suggest the recovery from this recession will be slow because so much wealth has been lost. Instead of being primed to spend as growth resumes, consumers in the U.S. and elsewhere are saving to get their lives back in order.
Mr. Flaherty said he expects unemployment to rise into 2010 followed by “modest” rebound in hiring over the rest of the year.
“The discussion is more about how strong the recovery will be,” Mr. Flaherty said. “The anticipation is the recovery will be modest.”
His comments reflect the general view of forecasters ranging from the International Monetary Fund to the Organization for Economic Co-operation and Development that the recession in most of the world's richer countries will bottom out over the second half of 2009.
They expect the climb out to be slow, in part because higher unemployment rates will curb consumer spending.
Canadian hiring data for June is scheduled to be released by Statistics Canada next week. The country's employers shed almost 42,000 jobs in May and have cut payrolls by more than 363,000 since November.
The unemployment rate in May was 8.4 per cent. That's likely rise to 8.7 per cent in June and will peak at 10 per cent in the second quarter of 2010, according to Toronto-Dominion Bank.
“We think it will be bad for some time,” said Millan Mulraine, a TD economist based in Toronto.
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