The IMF And The Jobless Recovery

The International Monetary Fund has published its April outlook for the global economy. It has been hailed by most commentators due to the strong upgrade in GDP recovery. The report states that “global growth is projected at 6% in 2021, moderating to 4.4% in 2022. The upward revision reflects additional fiscal support in a few large economies, the anticipated vaccine-powered recovery in the second half of 2021, and continued adaptation of economic activity to subdued mobility”.

However, there are important warning signs that should be considered because headlines have been predominantly euphoric about this optical upgrade.

Two factors that affect the quality of the recovery should worry us: The upgrade comes mostly from higher government spending and rising debt, and the job recovery is much slower than in previous cycles.

The unemployment rate in the euro area will remain well above 2019 levels even in 2022 (rising from 7.9% in 2020 to 8.3% in 2022). Only Germany shows a positive employment outlook that leads its unemployment ratio to fall to 3.7%. Spain, on the opposite side, will end, according to IMF estimates, with unemployment of 15.8% in 2022 from 15.5% in 2020. This would make Spain the eurozone economy with the highest unemployment rate even in 2022 and one of the highest in the world.

The United States is estimated to end 2022 with a 4.2% unemployment rate, a rapid decrease from the current 6%, but still above pre-pandemic levels. China's unemployment is expected to remain low at 3.6% and advanced Asia will likely show the best improvement in unemployment, reaching nearly record lows in 2022.

Even with these optimistic estimates of recovery, the IMF is showing that the covid-19 crisis is going to leave millions of workers left behind and that it will be particularly negative in an area that prides itself on social policies and high public spending, the eurozone.

This crisis has proven that being rich and having very elevated government spending did not help manage the health and economic crisis better.

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