Beyond the numbers: the human cost of the crisis

Transcript

In October, policymakers from around the world will gather in Washington DC to take stock of global economic prospects.

Our view is that for the first time since 2010 the prognosis for a sustained recovery in the advanced economies is expected to be positive. We expect the Eurozone will post growth of less than 1% in 2014 and the US will grow even faster.

There are however risks to this outlook. In the US, lawmakers will need to approve the US budget and extend the debt ceiling. And some emerging economies like India and Brazil remain vulnerable as capital has started to flow from their economies back to advanced economies.

This complicates the picture for the policymakers meeting in Washington DC.

At a time when optimism picks up, its easy to focus on the improving economic numbers and ignore the human costs of the crisis. This month, we've focused our attention on the state of the global job market. Here are our conclusions from our analysis:

We found that labour markets in advanced economies remain bruised as they've lost around 7 million jobs since the second quarter of 2008. On the flipside, emerging markets have created around 44 million jobs in the same period. In other words, for every job lost in the West, emerging economies have managed to create around 6. This explains the unemployment rate in advanced economies which has been higher than 8% for more than 4 years.

Policymakers and businesses are adjusting to these realities. For example, central banks like the Fed have been able to deploy large volumes of liquidity whilst keeping inflation under reasonable control. Had the labour market been in a better state, the scope for keeping monetary policy so loose would be much less.

And businesses in the US are adjusting to an environment where people are unemployed for longer which means they will have to spend more resources on training their newly hired staff.

At a glance

In October, policymakers from around the world will gather in Washington DC to take stock of global economic prospects. For the first time since 2010 the prognosis for a sustained recovery in the advanced economies is expected to be positive.

Specifically, we expect the Eurozone will continue to pick up gradually, posting average growth of just under 1%  in 2014. The US is projected to expand by a respectable 2.7% next year.

But, despite an improving picture among advanced economies, the global economy is still only expect to grow by around 3% next year.

This is because emerging economies like India, Indonesia, Turkey, South Africa and Brazil have run into trouble as capital has started to flow back to the advanced economies. This complicates the picture for the policymakers meeting in Washington.

At the same time, downside risks for the advanced economies are also apparent. The Eurozone is still in the early stages of setting up its future banking infrastructure. The US is gearing up for further budget and debt ceiling negotiations. And improved growth in advanced economies is pushing up long-term market interest rates, which is having a knock-on impact on funding costs around the world.

Labour markets in advanced economies remain bruised. In this edition, we have taken a look at the human cost of the crisis. Since the second quarter of 2008, advanced economies have lost around 7 million jobs. Put into context, in the same period, the world economy created 37 million jobs. In other words, for every job lost in the West, the emerging economies have managed to create around six – about 44 million in total.

Policymakers and businesses are adjusting to these new realities. On the plus side, greater spare capacity in advanced economies has meant that the Fed and other central banks have been able to pump large volumes of liquidity into markets while simultaneously keeping inflation under reasonable control. On the flipside, workers, particularly those in the US, who remain unemployed for longer periods are prone to losing some of their skills. US businesses are therefore having to dedicate more resources to training newly hired staff, which could impact their margins, especially in the short-term.

Chart of the month

Unemployment remains stubbornly high in advanced economies