Harper says he'll allow deficit to persist 'if necessary'

Prime Minister Stephen Harper acknowledged for the first time on Friday thatthefederal governmentcould run a deficit beyond five years if the recession lasts orCanada's economic recovery is weaker than forecast in the January budget.

Harper's comments came as Statistics Canada said Friday the countrylost about 7,400 jobs in June as the national unemployment rate rose to 8.6 per cent.

While 47,500 full-time jobs were lost last month, roughly 40,100 part-time positions were added.

Speaking at the G8 summit in L'Aquila, Italy, Harper emphasized that Canada's employment record is improving and is much better than the carnage still being experienced in the United States.

Harper also took a shot at parliamentary budget officer Kevin Page, whose leaked report said the deficit will still be $16.7 billion in the fiscal year 2013-14, and there will be a structural deficit one that requires tax increases or spending cuts to address of about $12 billion.

In response to a question about his five-year budget plan, Harper was clear he would not cut any programs, even if it meant abandoning his plan to eliminate the deficit within five years.

"Let me be very clear on this: we will allow the deficit to persist if necessary," he said. "We will not, in order to meet some timetable, start raising taxes and cutting programs. That's a very dumb policy."

The prime minister saidhis governmentcan't promise Canadians will not be affected by the recession.

"Clearly, we are being affected," he said."What we have promised is that we will continue to make sure our performance as a major developed economy is superior to the others."

Canadian job losses 'gradually easing': economist

The June jobs report was not as bad as had been feared by market watchers.

Economists had a consensus forecast that the country would lose a total of 40,000 jobs in June, although some outlooks expected losses to total 50,000 jobs. Most economists also expected the unemployment rate to come in at 8.7 per cent.

However, BMO Nesbitt Burns economist Douglas Porter pointed out that private-sector employment fell by 39,300 last month.

"Todays job report is not as friendly as the headline would suggest, but its also not shockingly weak, such as last weeks dire U.S. payroll news," said Porter in a commentary.

"But even if the Canadian job losses are gradually easing, its obvious that recession has yet to let go its steely grip on the economy, with the squeeze remaining particularly intense in manufacturing," he said.

Statistics Canada said employment was virtually unchanged in June in all provinces except Newfoundland and Labrador, where it rose.

Manufacturing loses jobs

The country added 26,000 jobs in information, culture and recreation, as well as 21,000 positions in finance, insurance, real estate and leasing. However, roughly 26,000jobs were shed in the manufacturing sector.

The summer job market alsoremained weak for students last month.

Among students aged 20 to 24, the unemployment rate hit a 12-year high of 14per cent, andthere were 43,000 fewer jobsthan the same month last year.

For students 17to19,employment was down50,000between June of2008and2009. Unemployment stood at 18.1 per cent,the highest since June1998.

RBC assistant chief economist Dawn Desjardins said the latest jobs report isconsistent withan economy continuing to contract in the second quarter, "although the slowing pace of decline suggests that conditions are becoming less dire."

RBCisexpecting the unemployment rate to continue to drift higher, rising by 0.1to 0.2 percentage pointseach month rather than the0.3 to 0.6 percentage point jumpsfrom earlier in the year.

"We also expect the [unemployment] rate to peak at 9.2 per cent,portending an easing in price pressures as the amount of economic slack grows," Desjardins said.