Job losses are mounting across Europe, intensifying pressure on governments to protect their labor markets from the backlash of the coronavirus or face the threat of protracted recessions.
While initial data on the impact are uneven, they provide early glimpses of the devastation in store. Reports showing almost one million Britons applying for welfare payments in the space of two weeks, a record jobless-claims surge in Spain, and Austria’s highest post-war unemployment rate, are among the worst examples so far.
Emergency stimulus by central bankers from Frankfurt to Stockholm and London, and a crisis re-engineering of welfare policies by panicking governments, are meant to provide a cushion to ensure any economic impact is temporary. But with a mounting death toll and much activity effectively frozen, whole areas of work are shriveling with no imminent prospect of reversal.
More pain to come
“There is major trouble for the real economy,” said Peter Chatwell, head of fixed income strategy at Mizuho International Plc. “The data are really only showing a part of that for the moment.”
That’s the case in Germany, the region’s biggest economy, where March jobless claims barely rose because the report was based on a cut-off date before most shutdown measures took effect. But Detlef Scheele, who runs the labor agency, said next month’s data will show increasing joblessness.
The gathering toll of either temporary or permanent work shutdowns threatens to test to the limit of newly devised or expanded government measures around the region that were designed to encourage businesses to keep paying staff even if they can’t do anything.
Even best intentions needn’t work
Dean Turner, an economist at UBS Wealth Management in London, said measures are “well intentioned”, but the “real question is the effectiveness of delivering those policies.”
“One has got to worry that the vast fiscal support packages that we’ve seen aren’t having the desired effect in terms of encouraging firms to hold on to workers rather than lay them off.”
It’s a similar story in the US, where jobless claims released on Thursday showed applications for unemployment benefits doubled to a second straight record last week. In Spain, claims rose by more than 300,000 in March, threatening to swell an unemployment rate that, close to 14 per cent, is already among the highest in the developed world. While UK data for March aren’t yet out, a statistics office survey shows 27 per cent of businesses are reducing staff levels in the short-term. The 950,000 people claiming universal credit welfare payments in the past two weeks - a measure normally for unemployed or low-income applicants - was almost 10 times as much as normal.
A study by Oxford University showed almost half of British workers will struggle to pay bills in the coming months.
Banking on government
Bank of America on Thursday cut its forecasts for the UK and euro-area economies, with both now expected to shrink more than 7 per cent this year.
The Nordic region meanwhile is already suffering a major employment shock, with more than 800,000 people out of work there, including in excess of 620,000 on temporary furloughs in Finland and Norway.
11billion eurosWhat France will provide its businesses to keep workers on their payroll.
French businesses have rushed to benefit from government aid to keep workers on their payroll. That scheme allows workers to keep their jobs while getting paid 84 per cent of their salary by the state. As of Thursday, 400,000 companies had applied for 4 million workers - around 20 per cent of the private sector labor force.
“We have the most protective system in Europe,” Labor Minister Muriel Penicaud claimed on France Info radio. “It’s the broadest, most powerful, and most direct system to save millions of jobs and allow business to keep skills and recover quicker.”
France’s government initially earmarked 8.5 billion euros ($9.3 billion) over two months for this initiative, but now expects it to cost closer to 11 billion euros.
In Germany meanwhile, a record 470,000 companies applied for state wage support in March - a number that is likely to continue rising - suggesting that so far around a fifth of the workforce could have working hours reduced.
“There’s still a lot of uncertainty about how some of the businesses who are not on the front-lines, the second tier, will be able to find support from governments or whether there’s just going to be a material round of layoffs and defaults at the corporate level,” said Mizuho’s Chatwell. “The shutdown is taking place, but we don’t know how healthy the economy is going to be able to emerge on the other side.”