Finance and Economic

The devastating economic malaise gripping the United States has finally infected Canada’s job market, which shed nearly 71,000 positions in November, the largest monthly net loss in 26 years.

The higher-than-expected job losses pushed the country’s unemployment rate to 6.3 per cent, up one-tenth of a percentage point from October.

"If you needed one piece of evidence to prove that Canada has finally entered that slippery slope toward recession, this would be it," said Michael Gregory, a senior economist at BMO Capital Markets.

Canada posted a net gain of 133,000 jobs in the first 11 months of the year, compared with almost two million jobs lost in the United States over the period.

The picture was especially bleak in Ontario, Canada’s manufacturing heartland, where 66,000 jobs evaporated. Those losses drove the province’s unemployment rate to 7.1 per cent, up from 6.5 per cent the month before.

And this likely won’t be the end of gloomy unemployment reports. With Canada’s economy poised to contract, said CIBC World Markets economist Krishen Rangasamy, "things will certainly get worse before they get better." He sees the unemployment rate "creeping up steadily toward 7 per cent," with another 100,000 job losses expected over the next few months.

Manufacturing was hit particularly hard in November, with net job losses of 38,000. The sector has seen employment decline by 388,000 positions since a peak in 2002, Statistics Canada said.

In Ontario, where barely a day goes by without manufacturers announcing layoffs or plant closures, manufacturing job losses were even steeper, totalling 42,000 last month. That number is poised to rise after recent layoff announcements take effect, including 850 job cuts at two Magna auto-parts plants in the GTA, and 700 temporary layoffs announced yesterday at General Motors in Oshawa.

The dismal Ontario jobs picture "really is consistent with our thinking that Ontario is the epicentre of the impact of the U.S. slowdown in Canada," said Glen Hodgson, chief economist at the Conference Board of Canada.

Other sectors that are particularly vulnerable to U.S. fortunes, including transportation and warehousing, also showed substantial job losses, Gregory said payday loan online.

But the situation is even worse in the United States, which recorded 533,000 net job losses in November, the largest one-month decline since 1974. That pushed the U.S. unemployment rate up from 6.5 per cent to 6.7 per cent.

The Bank of Canada is expected to drop its key interest rate by half a percentage point to 1.75 per cent Tuesday as the outlook for Canada’s economy continues to weaken.

The feeble Canadian employment numbers prompted more calls for a government stimulus package, which likely will have to wait until the federal budget, which is slated for Jan. 27. Governor General Micha?lle Jean agreed to prorogue Parliament at the request of the Conservative government.

"We needed a massive stimulus package two months ago, not two months from now," said Jim Stanford, an economist with the Canadian Auto Workers union. "It’s absolutely jaw-dropping that Parliament has been closed down … when we should be moving dramatically to try to stop this crisis from getting worse."

At Queen’s Park, opposition parties said the huge jump in Ontario’s unemployment rate is proof that Premier Dalton McGuinty’s efforts to fight the economic downturn and retrain workers are a failure.

"Everyone could see this coming. Everyone knew this situation was going to get worse and worse," NDP Leader Howard Hampton said.

Economic Development Minister Michael Bryant acknowledged the jobless numbers were "brutal" but said Ontario’s effort at boosting the economy is "not intended to, nor can it, address the global economic crisis."

Hodgson said job losses in Canada probably won’t last as long as in the U.S. due to widely expected stimulus packages in both countries.

But, he said, "even with a big Obama package in the United States, the U.S. economy is going to have a really, really tough 2009. And if you’re sitting in Ontario, that translates into weak sales for whatever you do."

With files from Rob Ferguson

and the Star’s wire services

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Offshore haven Liechtenstein has agreed a landmark deal with the U.S. to drop bank secrecy in cases of tax evasion and could make similar concessions in the European Union, a diplomat from the Alpine nation said.

Prince Nikolaus, a member of Liechtenstein’s ruling royal family who brokered the deal, told Reuters on Wednesday the tiny principality had agreed a “significant” change to bank secrecy rules that entitles the U.S. to bank account information when probing a tax dodge.

The prince said he was prepared to grant similar concessions within the European Union but wanted double-taxation agreements as well a commitment by countries to deal leniently with citizens that had hidden money from the taxman in Liechtenstein.

“We accept that more cooperation is necessary because there is more acute pressure,” the prince, the brother of Liechtenstein’s ruling monarch and the country’s ambassador to Brussels, told Reuters by phone from Brussels.

“People understand better today than a year ago that this is a hot issue,” said the prince. “It is of high political importance to many countries. Money is a rare species for states — they need every penny.”

Liechtestein is together with Monaco and Andorra one of three countries blacklisted by the Organization for Economic Cooperation and Development and was the target of a German investigation into thousands of citizens suspected of parking untaxed income in the principality.

The deal brokered with Washington, due to be signed this month, means banks in Liechtenstein could be forced to hand over bank account information to the U cash advance.S. authorities should they suspect tax evasion.

Previously, the U.S. had to prove a deliberate tax fraud — a standard so high it made bank accounts in the small country impenetrable to outsiders.

The Swiss banking association denied that the deal could pressure neighboring Switzerland — the world’s biggest offshore center — to take a similar step as it has a long-standing taxation agreement with the United States.

“We are in a different position and we are not under any pressure now and we have not heard any demands from the U.S. govt with regards to renegotiating that agreement,” a spokesman said.

EU DEAL?

Wedged between Austria and Switzerland, Liechtenstein is not an EU member and is under pressure from nearby EU countries to disclose bank data of non-residents.

An EU official confirmed that talks with Liechtenstein were in an advanced stage.

“The European Commission is in the advanced stages of negotiating an agreement with Liechtenstein on cooperation to fight financial fraud, including direct taxation, but so far there is no concrete deal for EU states and Liechtenstein to sign,” the official said.

Germany and France have been pushing for such an agreement to include banking secrecy, which set back the negotiations. 

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JPMorgan Chase & Co., the largest U.S. bank by assets, will cut 9,200 Washington Mutual Inc. jobs nationwide as it acquires the Seattle-based lender, a spokesman said.

The bank will eliminate 4,000 jobs and put 5,200 employees on a transition team. Those employees will help integrate the banks, and some will remain in the positions until the end of next year, JPMorgan spokesman Thomas Kelly said in an e-mail.

JPMorgan paid $1.9 billion in September for most of Washington Mutual, including the branches and deposits, after the thrift was taken over by the Federal Deposit Insurance Corp.

New York-based JPMorgan expects to keep most of the WaMu branch employees and will shutter less than 10 percent of the combined company’s retail outlets free credit reports.

WaMu’s former Seattle headquarters will account for 3,400 of the job cuts, the Seattle Times reported. The bank is also cutting 1,600 jobs in California, mostly in back-office operations.

Washington Mutual had more than 43,000 employees at the end of June.

JPMorgan dropped $5.54, or 18 percent, to $26.12 in New York trading. The shares have fallen 40 percent this year.

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European and Chinese industry activity slumped in November, Japanese officials said their economy was slowing rapidly and euro zone finance ministers gathered on Monday to discuss plans to curb recession.

The Bank of Japan called an emergency meeting for Tuesday to find ways to help corporate finance. BOJ Governor Masaaki Shirakawa warned access to funding was becoming increasingly tough for Japanese firms, to an extent comparable with a debilitating credit crunch a decade ago.

“Sluggishness in economic activity has increased rapidly. Overseas economies are experiencing the same kind of rapid change,” Shirakawa said of the broader Japanese economy.

Euro zone manufacturing activity sank to a record low in November and the outlook was equally grim.

The Markit Eurozone Purchasing Managers Index (PMI) for the manufacturing sector slumped to 35.6 in November, a low not seen in the survey’s 11-year history and way below the 50 mark that separates expansions from contraction.

“The extremely weak … survey intensifies fears that the euro zone’s recession will be deep and prolonged,” said Howard Archer, economist at IHS Global Insight.

The euro zone was officially declared in recession this month following a second quarterly contraction in economic output. Analysts do not see the economy growing again until the third quarter next year — and then only marginally.

The financial crisis that began with a U.S. housing market collapse last year has already knocked several big economies into recession, including the euro zone same day payday loans. Most economists believe the United States and Britain will soon follow.

Similar surveys from China showed its manufacturing industry slumped in November as new orders tumbled, showing the world’s fourth-largest economy being sucked deeper into the global maelstrom.

Japan’s economy minister was gloomier even than Shirakawa.

“We are moving to the next phase of shrinking consumption — some call it deflation — production going down and prices going down,” Economy Minister Kaoru Yosano told the Financial Times in an interview published on Monday.

RATE CUTS COMING

Central banks in Britain, the euro zone, Australia and New Zealand are expected to cut borrowing costs sharply this week in response to the crisis. Politicians are also poised to weigh in.

Euro zone finance ministers meet later on Monday to pick over a menu of economic measures drawn up by the European Commission, which could inject up to 200 billion euros ($258.8 billion) of government spending, although that figure includes national schemes already announced.

Agreement may prove elusive. German Chancellor Angela Merkel told her party on Monday the government, which has unveiled a 32 billion euro plan, would not take part in a “senseless” competition to spend billions more. 

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