The novel coronavirus (COVID-19) pandemic of 2020 proved to be a challenging period for the global economy. Unprecedented regional lockdowns, travel restrictions and mass quarantines prompted a historic downturn. Although some regions were harder hit than others, the common denominator was a rapid spike in unemployment.
For heavily afflicted areas, a dramatic uptick in unemployment can have severe consequences. Traditional economic theory suggests that growing unemployment represents a downturn in gross domestic product (GDP), reduced wages and social unrest. The products of these factors may be severe and include loss of sovereign wealth, political upheaval or armed conflict.
Unfortunately, 2020's COVID-19 outbreak quickly brought forth levels of unemployment last witnessed during the Great Depression. As of this writing (late November 2020), the global labour market has yet to recover from the shock, and developed and emerging nations are all navigating turbulent economic waters.
According to the Organisation of Co-operation and Development (OECD), unemployment is defined as follows:
"The unemployed are people of working age who are without work, are available for work and have taken specific steps to find work."
In the vast majority of developed nations, the basic tenets of the OECD's synopsis are accepted. For instance, the U.S. Bureau of Labor Statistics (BLS) puts forth a very similar unemployment explanation:
"People who are jobless, actively seeking work and available to take a job."
The International Labour Organisation (ILO) brings together workers, governments and businesses to foster acceptable standards for all. When interpreting unemployment, the ILO offers a bit more specificity than the OECD or BLS:
"Unemployed people are without a job, have been actively seeking work in the past four weeks, and are available to start work in the next two weeks."
The ILO's definition is used by the Statistical Office of the European Union (Eurostat) and is featured in OECD rate calculations. Essentially, the OECD, BLS and ILO agree that an unemployed individual is able and motivated to work, but still jobless. Countries around the world subscribe to the ILO's methodology, Japan, Australia and those in the United Kingdom (U.K.) and European Union (EU). Therefore, the unemployment rate for most developed nations is derived as follows:
*Unemployment Rate = (Unemployed Persons)/(Total Labour Force)
It's important to remember that even though the unemployment concept is largely universal, the way in which unemployment rates are calculated is nuanced. Discrepancies commonly arise regarding labour force counts, assumed time frames, and seasonal adjustments. To build a viable comparison between countries or regions, one must first examine the methodology behind the figures in question.
Throughout the COVID-19 pandemic, unemployment rates became a go-to economic metric for traders and investors alike. From the initial onslaught of COVID-19 in late-February to the virus's November second wave, the markets closely monitored periodic reports. As unemployment rates moved up or down, forex pairs, commodity futures, stocks and debt instruments consistently exhibited heightened pricing volatility.
Rising Unemployment Rates And COVID-19
Upon the COVID-19 virus going global in late-February 2020, the world endured a seismic economic shift. Within the first 90 days, the negative impacts became apparent. According to the OECD, developed nations saw a collective decline in real GDP of 6.9% for the second quarter (Q2) of 2020―the largest such contraction on record. In fact, Q2 2020 far outpaced Q1 2009 (-1.6%), which occurred during the height of the international financial crisis.
The economic damage stemming from the lockdowns of March, April and May were felt nearly worldwide. India (-25.2%), the U.K. (-19.8), Mexico (-17.1%), Eurozone (-11.8%) and the U.S. (-9.0%) all experienced severe downturns in real Q2 2020 GDP. The only world financial superpower that showed a gain was China at +11.7%. Later on in November 2020, the International Monetary Fund (IMF) summed up the COVID-19 fallout: projected real global GDP was to come in at -4.4% for 2020, the lowest level in more than 40 years.
As the pandemic wore on, the ill effects of mass bureaucratic and business shutdowns became apparent. Extraordinarily high levels of unemployment were evident as commerce came to a halt, prompting the layoff or furlough of millions of workers. To combat the crisis, unprecedented government stimulus packages and central bank lending programs were launched. By and large, the efforts were deemed a success. However, a full global recovery remained elusive.
Due to the COVID-19 pandemic, 2020 was to be a dreadful year for growth and unemployment. Few countries were spared the hardships brought on by the true Black Swan economic event.
Global COVID-19 Unemployment
In the aggregate, the world struggled to return to maximum employment following the initial shock of COVID-19 lockdowns. While some regions were able to resume commerce on a relatively short timeline, others did not fare so well. Official estimates indicated that the world's labour market struggled to recover.
According to the IMF, advanced economies experienced a spike in unemployment for 2020. Estimates came in at 7.3%, up 2.5% from 2019 levels (4.8%).
Although measuring unemployment in emerging economies is difficult, the IMF does have figures for several such nations. For 2020, unemployment reached extreme levels in South Africa (37%), Colombia (17.3%), Turkey (14.6%) and the Philippines (10.4%). The year-over-year uptick was substantial across the board, with an 8.3% annual rise in South African unemployment being among the largest.
By a wide margin, the labour markets of emerging economies were hit much harder by COVID-19 than those of developed nations. There are many reasons for this, primarily commodity pricing volatility, lagging foreign investiture, currency instability and a lack of industrial diversity.
COVID-19 Unemployment In G20 Nations
The Group of Twenty (G20), is a collection of the world's largest economies. Throughout the COVID-19 pandemic, the G20 has been active in providing resources to combat both financial and humanitarian challenges. During the March 2020 market panic, G20 nations spent more than US$5 trillion to "counteract the social, economic and financial impacts of the pandemic." The capital injections continued as the virus's comprehensive impacts became known.
One of the primary goals of the G20's spending was to support the world's labour force until a post-COVID-19 recovery became reality. The financial consensus deemed the G20's initial actions a success, mitigating the negative market, economic and unemployment impacts. As the contagion unfolded, the following financial superpowers experienced varying degrees of unemployment recovery.
The Office for National Statistics (ONS) reported that the U.K. unemployment rate stood at 4.8% for Q3 2020. This figure was up 0.7% from Q2 and suggested that 1.62 million people were jobless. Analysts at the Bank of England projected this figure to peak at 7.7% in 2021.
In a 1st September 2020 report from Eurostat, the EU unemployment rate was 7.9% in July, up from 7.7% a month earlier. As of July, a total of 15.184 million people were officially considered unemployed. Economists expected this trend to post a high of 9.4% in 2021 before residing.
According to the BLS, U.S. unemployment came in at 10.2% for July 2020, falling month-over-month. In subsequent months, the unemployment rate continued to fall to 6.9% in October. September forecasts from the U.S. Federal Reserve (Fed) suggested that domestic unemployment for 2020 was to stand at 7.6% before falling to 5.5% for 2021.
A 30 October 2020 release from the Statistics Bureau of Japan (SBJ) listed Japan's unemployment rate at 3.0%. Aggregate unemployed persons totalled 2.10 million, up 420,000 from 2019. The OECD projected the uptrend to continue, reaching 4.0% for Q4 2020.
Among the G20 superpowers, the Chinese labour market proved relatively adept at weathering the COVID-19 contagion. Estimates from the IMF predicted that China was to come in at 3.8% unemployment for 2020, up only 0.2% year-over-year. This was largely due to a late summer economic rally, prompting unemployment to fall to 5.4% in September from 5.6% in August. Many analysts project robust economic activity in China for 2021, a potential catalyst for a further decline in unemployment.
The five countries and unions listed above represent the top tier of G20 economies in terms of GDP. Generally speaking, unemployment rates rose across the remainder of the G20 nations. For example, IMF estimates showed that Australia (6.9%), Italy (11%) and Russia (5.6%) also experienced major increases in joblessness for 2020.
Ultimately, only time will tell how quickly, or if at all, the world will return to stronger employment levels. Future industrial lockdowns, travel bans and regulatory actions may all undermine global labour and economic growth.
However, health care breakthroughs in the area of COVID-19 treatments and vaccines are viewed as potential catalysts for a sweeping recovery. Until then, government stimulus and central bank quantitative easing will be the premier drivers of global labour market performance.
Senior Market Specialist
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…