The Conservative government is warning that Canada's economic recovery is in a fragile state as a spiking dollar combines with protectionist U.S. polices to create a flat-lining job market.
Finance Minister Jim Flaherty singled out Canada's hard-hit manufacturing sector as a particular concern, yet candidly suggested it's not clear what his next budget can do to help.
Following up on last week's disappointing December job numbers, Prime Minister Stephen Harper and Mr. Flaherty both pointed fingers Monday - but at factors that are largely beyond their control, including Buy American provisions that allow U.S. states to prevent Canadian exporters from cashing in on stimulus contracts.
Mr. Flaherty, who is in pre-budget consultations with business leaders, academics and community leaders, said it is a "significant concern" that employment may lag as the economy turns around.
"This is a fragile situation," Mr. Flaherty told reporters Monday in St. Boniface, Man. "I will hear more about the manufacturing sector and weakness in the manufacturing sector, and what, if anything, government can do to help strengthen a recovery in the manufacturing sector."
Mr. Flaherty, Trade Minister Stockwell Day and Industry Minister Tony Clement will take part in a two-day summit next month put on by the Canadian Manufacturers and Exporters (CME) aimed at addressing that issue.
Manufacturing shed 190,800 jobs across the country from December, 2008, to December, 2009. Ontario lost 82,600 of those jobs - the most in the country, followed by Alberta, British Columbia and Quebec.
Although manufacturers insist jobs will rebound, a recent survey of CEOs showed most expected to maintain current staffing levels in the first quarter of 2010.
"We'll start to see more of economic recovery, but we'll see sort of flat unemployment and employment numbers," Mr. Flaherty said. "It takes time for businesses to gain the confidence to hire people again, and that's a significant concern."
Jayson Myers, president of CME, said Ottawa could help with tax incentives for companies that invest in specialized markets and new technology. He said job-sharing programs could also be extended and more training encouraged.
"There's not a lot the government can do to pick up the U.S. dollar and things like that, but there's all sorts of things that governments can do to make sure companies are in a better position to be able to respond to the problem."
But adding such measures to the stimulus package would likely be a hard sell, given that Mr. Harper has said the government is turning its attention to cutting back. The Tories have ruled out major new spending in the 2010 budget and are asking for suggestions on further cuts.
In an interview Monday, Mr. Harper told Business News Network the high dollar is hurting exports to the United States.
"Obviously, the rise of the Canadian dollar has put somewhat of a damper on a recovery, so it's something we continue to be concerned about."
Mr. Harper said his government is focused not only on jobs, but on an "exit strategy" for the deficit. He rejected concerns of a "structural" or permanent deficit on the grounds that internal savings can be found to balance the books. Parliamentary Budget Officer Kevin Page disagrees, and will release a report Wednesday detailing his concerns.
The Federation of Canadian Municipalities, which keeps a close eye on federal stimulus projects, said government spending will create thousands of jobs this year.
Brock Carlton, the federation's chief executive officer, said his members are more worried about the government's longer-term plans to cut spending.
"The biggest concern is what happens after 2010 and what the government will do to protect cities and communities from the wave of post-recession spending cuts and offloading that did so much damage in the 1990s."
Mr. Flaherty said the 2010 budget will not be a budget "like the others" in that there will be no large, new spending, and will primarily confirm the second and final year of stimulus measures outlined in the January, 2009, budget.