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Thu 10 Sep 2020 09:22 AM

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Global job figures stall coronavirus-era recovery

Around the world, the statistics are offering a conflicting picture of economic health - not least in the GCC

Global job figures stall coronavirus-era recovery

Khatija Haque, Chief Economist and Head of Research at Emirates NBD

On the surface, some key economic indicators are beginning to paint a more positive picture of a post-coronavirus landscape. Employment in the US rose by 1.37 million last month, helping to trim the unemployment rate to 8.4 percent from its pandemic-peak of 14.7 percent in April. The latter was particularly encouraging considering that one million more people started looking for work in August after generous federal unemployment benefits expired at the end of July.

While these most recent figures show that the US labour market is continuing to recover – even as virus cases increase – it is not all good news, as it so rarely is when economists are telling the story.

Firstly, the rise in jobs was the smallest since June, and if we strip out the 238,000 people hired temporarily for the census collection, then the underlying job growth was much slower than in July. More than half of the people who lost their jobs in March and April are still out of work.

Secondly, while many of those who were laid off temporarily have now been re-employed, the number of unemployed considered “permanent job losers” has increased to 3.4 million people, almost 170 percent higher than it was in February. The longer people remain unemployed, the harder it can be for them to find work, and the less they are likely to earn once they do find new jobs.

European unemployment set to rise

Unlike in the US, unemployment in the Eurozone has risen only gradually in the second quarter of the year, as most governments put in place furlough or wage compensation schemes. Germany has recently extended its wage subsidy programme until the end of 2021 to prevent companies from laying off workers in the interim.

However, recent data suggests that the pace of economic recovery in the Eurozone is slowing. The Purchasing Managers’ Index (PMI) survey showed a slowdown in business activity last month, with the services sector particularly affected by the increase in coronavirus cases and reinstatement of some localised restrictions, as well as the impact on tourism. Jobs in the services sector continued to be lost in August, for the sixth month in a row.

The UK’s furlough scheme is set to expire at the end of October, and unless it is extended, unemployment could rise to 10 percent in the fourth quarter of this year from 3.9 percent currently. Indeed, the August PMI survey showed that although business activity in the UK rose sharply in August, employment declined for the first time in three months.

Regional recovery is a jobless one, so far

Employment trends in our region are similar to what we have seen in the rest of the world. The PMI survey for the UAE showed that employment in the non-oil private sector declined sharply in August as businesses sought to cut costs in the face of sluggish demand conditions. According to IHS Markit, the company that produces the PMIs, 20 percent of the panel of firms surveyed last month said that they had reduced their employee headcount, while none reported an increase.

Private sector employment accounts for more than 80 percent of total employment in the UAE, according to a central bank report, so a decline in private sector jobs will have a negative impact on private consumption. Last year, private consumption accounted for almost 40 percent of the UAE’s DP, and it is therefore a significant baramoter of economic health. The impact of job losses on household spending will likely be compounded by a decline in salaries for many of those still employed as well as those who have been placed on unpaid leave or furloughed.

More fiscal stimulus is needed to get growth back on track

So, what can be done to soften the blow for households? Central banks have done as much as they realistically can by cutting interest rates to zero or below, and ensuring that financial markets have sufficient liquidity to function normally. Some developed markets’ central banks have gone further by opening a window for corporates to access financing directly, or by purchasing corporate bonds.

Fiscal policy also helped tremendously during the second quarter of this year, with direct payments to households (stimulus cheques and enhanced unemployment benefits in the US and furlough schemes in Europe) allowing consumers to meet their loan obligations and boost retail spending once restrictions were eased. But governments can and arguably should do more.

One option is extending unemployment benefits or wage payment programs; another is boosting public sector investment in infrastructure and technology. The latter course of action would have the dual benefit of creating jobs now, when the private sector isn’t, while also boosting future growth potential.

Khatija Haque, Chief Economist and Head of Research at Emirates NBD

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