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Economy Lab

Unemployment forecast to remain high Add to ...

The economy may have created all of the jobs lost to the recession in straight number terms. But the unemployment rate is still expected to remain elevated for some time yet.

A new forecast by CIBC World Markets, for example, projects the jobless rate will be 7.5 per cent this year and a still-high 7.1 per cent in 2012.

Government spending helped pump up the economy during the slump, but this year, said economists Benjamin Tal and Emanuella Enenajor, will see the public sector pull back.

"Significant reductions in spending will come by late 2011 when infrastructure stimulus projects wrap up," they said in a report.

"Additional cuts to program spending should see compensation expenses drop on wage restraint, employment attrition and select job cuts. As was seen during the 1990s period of budget tightening, a one-percentage-point drop in the deficit-to-GDP ratio meant an approximate 1-per-cent reduction in the public sector headcount, suggesting the labour market could lose around 35,000 government positions this year."

Other forecasters also expect job creation to be gradual after the bounce back.

Adding to those fears is the construction sector, which accounted for a hefty portion of labour market gains.

But, said economist Adrienne Warren of Bank of Nova Scotia, that's about to change.

In a report on why the renovation market will cool this year, Ms. Warren noted the "far reaching" potential impact on the broader economy.

"The renovation industry is labour intensive, and a large share of its materials are sourced domestically," she said. "The broad construction sector has accounted for 18 per cent of all jobs created in Canada over the past decade, more than double the sector's share of overall employment."

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