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Rejecting the budget was the easy part. Now, whoever forms the next government will face a harsh economic environment, marked by years of slower growth and painfully sluggish job gains.

Canada is now in the midst of a sobering shift from fiscal excess to austerity. Add to that a world of uncertainties and the prospect of higher interest rates, and the recovery could prove very bumpy for the rest of the year and into 2012, posing major challenges for political leaders.

"Canada had an amazingly jobs-rich early stage of the recovery," argued Doug Porter, deputy chief economist at BMO Nesbitt Burns in Toronto.

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"Now comes the tough part. It's going to be quite a bit harder to create more jobs."

Budget documents acknowledge that the jobless rate is likely to stay stubbornly high for years - at least a full percentage point above the prerecession level of roughly 6 per cent. The budget projects an unemployment rate of 7.5 per cent this year, 7.2 per cent in 2012 and an average of 7 per cent between 2011 and 2015. The jobless rate stood at 7.8 per cent in February.

Job growth has shifted into low gear since the recovery. Canada was a job creation machine from mid-2009 to last summer, quickly recovering the jobs lost in the recession and driving the unemployment rate lower. But the two main sectors driving those impressive job gains - construction and the public sector - won't likely be doing much hiring in the months head, Mr. Porter suggested.

As a result, job creation is going to be job one for whichever party wins the next election, which could come as early as May 2.

In his budget Tuesday, Finance Minister Jim Flaherty boasted that more Canadians are working now than before the recession, and that "all of the jobs gained since July 2009 have been in relatively high-paying industries."

Making good on the Liberal pledge to scrap next year's final instalment of a series of corporate tax cuts would "kill hundreds of thousands of jobs," Mr. Flaherty warned in his budget speech.

The main reason that unemployment remains high today is that recent job gains haven't kept pace with population growth, leaving many people unable to find work.

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And in spite of government claims to the contrary, the quality of the post-recession jobs bounce is questionable. The average hours worked by Canadians remains below 2008 levels, reflecting a shift to more people working part-time - many not by choice.

A recent Statistics Canada study on the labour market found full-time jobs evaporated in the downturn, forcing more people into part-time work. There were 113,000 fewer full-time positions in October, 2010, than two years earlier, and the number of involuntary part-time workers swelled by 20 per cent in the same period.

And the number of people collecting employment insurance remains well above prerecession levels. As of December, more than half a million people (660,000) were getting jobless benefits.

Canada is clearly in a "much stickier" economic environment, Scotia Capital economist Derek Holt said. Monthly job gains will likely average 15,000 to 20,000, a far cry from the gains of earlier in the recovery, he added.

The country also faces unforgiving financial markets, where investors are looking for economic weakness.

"We are in an environment where rolling fiscal shocks and bond market worries are moving from one country to the next," Mr. Holt said "We're going to remain in that environment for years to come, and we expect [shocks]to intensify as the year goes on and into next year."

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With that kind of backdrop, he said neither the Conservatives nor the Liberals can afford to offer Canadians anything other than a clear path to budget balance.

"To stray from fiscal resolve would be a dicey bet," he said. "[Both parties] understand that."

Indeed, BMO's Mr. Porter said beyond the Liberals' stand on corporate taxes, there isn't much to distinguish the economic policies of the two main parties.

"From a financial market point of view, there really isn't a lot to separate the two parties," he said.

But in an election, a lot can happen. And Mr. Porter said "the two parties may want to put a bit more space between each other."

With files from Tavia Grant in Toronto

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