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A Jobless Recovery Is Becoming a Real Risk for Europe’s Economy – Yahoo Canada Finance

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A Jobless Recovery Is Becoming a Real Risk for Europe’s Economy

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(Bloomberg) — With job cuts mounting and costly furlough programs that can’t last forever, Europe is at risk of a devastating increase in unemployment that won’t be easy to reverse.

Economies across the continent are recovering and company sentiment is brightening, but it’s a different story when it comes to hiring. After months of crisis, the outlook remains too uncertain for firms to commit to spending. Many may not even reinstate all furloughed workers when governments end subsidies that kept millions on payrolls.

All that raises the prospect of a job-poor — or even jobless — recovery, where unemployment stays high for a prolonged period even as growth appears to pick up. That could threaten consumer demand, hitting retailers, restaurants and bars that are already struggling, and feeding a damaging loop through the economy.

“The initial phase of the recovery will be jobless, and that’s very typical for a European recovery,” said Nick Kounis, an economist at ABN Amro. “A lot of the job losses are still ahead of us.”

The potentially bleak employment outlook for Europe underscores how even a combination of policies that generally set the continent apart both in halting the spread of the coronavirus and mitigating its economic fallout can’t ultimately completely protect labor markets.

In the euro area, unemployment could hit almost 10% by the end of the year as the economy slumps, according to a Bloomberg survey. A rebound in growth in 2021 won’t be enough to reverse the damage. U.K. joblessness is forecast to reach 8%, more than double its tally earlier this year.

Furlough schemes to subsidize payrolls in the euro zone’s four biggest economies supported 26 million people at their peak, according to Bloomberg Economics. But even with such huge programs, the fallout on jobs is spreading. In recent weeks, Airbus SE, Commerzbank AG and Sanofi were among major companies to signal staff cuts.

The situation could deteriorate further once furloughs are wound down. If business hasn’t recovered enough when that happens, dole lines will grow.

“The worst of the impact on labour markets may be yet to come,” European Central Bank Executive Board member Fabio Panetta said this month. “Some workers on short-time work schemes and temporary lay-offs may not be able to return to their jobs, and hiring looks likely to stay subdued.”

At Bank of America, analysts point to the European Commission’s monthly confidence data, where the jobs outlook in key economies is lagging that for industrial output.

“If production expectations improve more than employment expectations, the recovery may be job-poor, with implications for the labor market and household consumption,” economists including Ruben Segura-Cayuela and Evelyn Herrmann said in a report.

That prospect is already troubling consumers. An Ipsos Mori poll covering 27 countries showed their second-biggest worry after the coronavirus was unemployment. In France, Italy and Spain, it’s the top concern, more even than the virus that killed almost 100,000 in those three nations.

Policy makers are acknowledging the dangers, highlighting issues such as scarring in the labor market as millions lose work.

“Layoffs in the wake of bankruptcies are likely to leave many jobseekers struggling to retain their skills and attachment to the labor market,” the European Commission warned on July 7.

What Bloomberg’s Economists Say…

“If the furloughed become jobless, generous social safety nets mean the immediate impact on incomes would be limited. But, with millions more out of work, a model of saving behavior suggests nervous consumers would cut back on spending, deepening the downturn.”

–Jamie Rush and Maeva Cousin. Read their EURO-AREA INSIGHT

The Bank of England also sees a threat of higher and more persistent unemployment. When its chief economist, Andy Haldane, offered a relatively optimistic take on the economy last month, it was tempered by labor-market worries.

“Of these risks, the most important to avoid is a repeat of the high and long-duration unemployment rates of the 1980s, especially among young people,” he said.

Governments are desperate to get ahead of the problem. U.K. Chancellor of the Exchequer Rishi Sunak announced a new program to protect jobs this month to counter what he described as “the most urgent challenge” of unemployment. That announcement came two days after an Opinium survey showed almost half of businesses expect to cut staff when Britain’s furlough program ends in October.

German politicians are currently discussing an extension of their own program, while France has created a furlough mechanism that could last up to two years for companies that strike deals with unions on reduced working time in exchange for job guarantees. The French government has also pledged an annual incentive of as much as 4,000 euros ($4,566) for hiring young people.

The costs of such measures are too high for politicians to make them permanent, even if central bank bond-buying stimulus has bought them room for maneuver by containing yields for now. Analysts also wonder if even all that support will be enough to mitigate permanent economic damage.

“For some industries, you can see structural changes which may mean that some jobs might not come back,” ABN’s Kounis said. “The people who are sometimes laid off in an industry that is downsizing don’t have the right skillsets straight away to fit into industries that are moving forward.”

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As economy struggles, Fed weighs boosting bond purchases – OrilliaMatters

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WASHINGTON — At their meeting earlier this month, Federal Reserve officials discussed possible future adjustments to the central bank’s monthly bond purchases to boost the economy.

The Fed on Wednesday released minutes of its Nov. 4-5 meeting revealing that while officials believed that no changes were needed to the bond purchase program at that time, “they recognized that circumstances could shift to warrant such adjustments.”

The Fed since June has been buying $120 billion in bonds each month to keep downward pressure on long-term interest rates as a way of giving the economy a boost as it struggles to emerge from a deep recession.

The purchases have included $80 billion a month in Treasury bonds and $40 billion in mortgage-backed securities.

With the economy showing signs of slowing in the face a resurgence in coronavirus cases and a return to shutdowns in some areas, there has been market speculation that the Fed could decide to boost the size of its monthly purchases.

The minutes show that while no decision was taken on what to do or when, Fed officials were keeping their options open. Some analysts believe the Fed will make an announcement on boosting the bond purchase program at its next meeting on Dec. 15-16, especially if there has been no movement by Congress to provide more economic relief to individuals and businesses.

The minutes said that many Fed officials “judged that asset purchases helped provide insurance against risks that might reemerge in financial markets in an environment of high uncertainty.”

Concern has been growing among economists that the economy is slowing after an initial rebound this summer and could even topple into a double-dip recession in the early part of 2021 if Congress does not replenish expiring support programs.

At the White House Wednesday, Peter Navarro, one of President Donald Trump’s economic advisers, told reporters that a “sober” reading of the economic recovery shows “we are facing … a chasm ahead for millions of Americans unless there can be a bipartisan” deal to provide further economic relief.

The minutes released Wednesday covered the Fed’s Nov. 4-5 meeting, held just after the November elections, and were released with the customary lag of three weeks.

At the meeting, the central bank kept its benchmark interest rate at a record low near zero and signalled that it was prepared to do more if needed to support the economy.

A multitrillion-dollar stimulus effort enacted in the spring has helped support millions of Americans who have been thrown out of work and provided further assistance to struggling individuals and businesses.

But many of those programs have expired and jobless benefits are due to run out for millions of Americans by the end of this year.

Federal Reserve Chairman Jerome Powell had said at a news conference following the two-day meeting that Fed officials had discussed whether and how a bond buying program might be altered to provide more economic support.

In addition to increasing the size of the program, the Fed could decide to alter the composition of the bonds purchases to focus on buying long-term securities as a way of putting added downward pressure on long-term rates.

___

AP White House reporter Kevin Freking contributed to this report.

Martin Crutsinger, The Associated Press

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UK borrowing to hit peacetime high as economy faces COVID-19 emergency – The Guardian

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By William Schomberg and David Milliken

LONDON (Reuters) – Britain will borrow almost 400 billion pounds this year to pay for the massive coronavirus hit to its economy, finance minister Rishi Sunak said on Wednesday, as he took his first steps to offset the country’s highest budget deficit outside wartime.

The world’s sixth-biggest economy is now set to shrink by 11.3% in 2020 – the most since “The Great Frost” of 1709 – before recovering by less than half of that in 2021, Sunak told parliament as he announced a one-year spending plan.

“Our health emergency is not yet over. And our economic emergency has only just begun,” he said, promising more money for health, infrastructure, defence and to fight unemployment.

Britain’s budget watchdog estimated borrowing would be 394 billion pounds ($526 billion) in the 2020/21 financial year that began in April, slightly more than it predicted in August.

At 19% of gross domestic product, the deficit will be almost double its level after the global financial crisis which took nearly a decade of unpopular spending squeezes to work down.

Sunak announced cuts to foreign aid spending and a freeze on pay for many public sector workers.

But with many public services still stretched, Sunak is expected to look more at tax rises to make up the shortfall.

“We have a responsibility, once the economy recovers, to return to a sustainable fiscal position,” he said on Wednesday.

Britain was hammered harder by the coronavirus pandemic than most other rich economies as it underwent a long lockdown.

Nearly 56,000 Britons have died from COVID-19, the highest death toll in Europe.

Even with recent positive news about vaccines, the Office for Budget Responsibility (OBR) said the economy was only likely to regain its pre-crisis size at the end of 2022 – or later if Britain fails to get a post-Brexit trade deal with the European Union before a transition arrangement expires on Dec. 31.

Sunak made no reference to Brexit in his speech.

YET MORE SPENDING

Since the pandemic struck Britain a few weeks after he took over as finance minister, the former Goldman Sachs analyst has rushed out emergency spending – much of it on pay subsidies to fend off a surge in unemployment – and tax cuts.

The shift away from the traditional economic orthodoxy of the Conservative Party has alarmed some lawmakers.

Sunak said the cost of his measures to fight the coronavirus was now 280 billion pounds for this year, up from a previous estimate of about 200 billion pounds.

Even so, long-term economic damage of roughly 3% of GDP was likely as a result of COVID-19, the OBR said.

Unemployment was likely to peak at 7.5%, from 4.8% now.

With that damage in mind, Sunak sought to stress how spending would rise in the short term as Britain grapples with the fallout from the pandemic.

Over this year and next, day-to-day spending will rise by 3.8% in inflation-adjusted terms, the fastest growth rate in 15 years.

To meet Prime Minister Boris Johnson’s promise of “levelling up” growth around the country, 100 billion pounds will be spent next year on longer-term investments, 27 billion pounds more than last year.

A new national infrastructure bank will be based in the north of England, where many voters broke with tradition and backed Johnson in last year’s election.

Johnson later told Conservative lawmakers at a meeting of the 1922 Committee that he was confident the British economy could bounce back quickly, and that his government would deliver for the people who elected him, a lawmaker attending the meeting said.

The OBR said it would take 1% of GDP of spending cuts or tax hikes to bring the government’s day-to-day spending into line with its revenues. Debt was likely to rise further, to over 109% of GDP in 2023/24, up from about 101% now.

Paul Johnson, head of the Institute for Fiscal Studies think-tank, said the headline numbers were “completely staggering” but hid a squeeze on spending in three or four years’ time which would be challenging to deliver.

Sunak signalled some early cost-saving moves, including the freeze on pay for public sector workers, except for doctors, nurses, other health staff and the lowest-paid public sector workers.

And Britain will save 3 billion pounds a year by cutting overseas aid spending to 0.5% of GDP, a level that remains higher than almost all other rich countries.

The Archbishop of Canterbury Justin Welby said the cut was “shameful and wrong”, former Prime Minister David Cameron said the government had broken a promise to the poorest countries of the world, and the government’s minister for sustainable development resigned.

(Writing by William Schomberg; Editing by Catherine Evans and Jan Harvey)

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UK borrowing to hit peacetime high as economy faces COVID-19 emergency – The Guardian

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By William Schomberg and David Milliken

LONDON (Reuters) – Britain will borrow almost 400 billion pounds this year to pay for the massive coronavirus hit to its economy, finance minister Rishi Sunak said on Wednesday, as he took his first steps to offset the country’s highest budget deficit outside wartime.

The world’s sixth-biggest economy is now set to shrink by 11.3% in 2020 – the most since “The Great Frost” of 1709 – before recovering by less than half of that in 2021, Sunak told parliament as he announced a one-year spending plan.

“Our health emergency is not yet over. And our economic emergency has only just begun,” he said, promising more money for health, infrastructure, defence and to fight unemployment.

Britain’s budget watchdog estimated borrowing would be 394 billion pounds ($526 billion) in the 2020/21 financial year that began in April, slightly more than it predicted in August.

At 19% of gross domestic product, the deficit will be almost double its level after the global financial crisis which took nearly a decade of unpopular spending squeezes to work down.

Sunak announced cuts to foreign aid spending and a freeze on pay for many public sector workers.

But with many public services still stretched, Sunak is expected to look more at tax rises to make up the shortfall.

“We have a responsibility, once the economy recovers, to return to a sustainable fiscal position,” he said on Wednesday.

Britain was hammered harder by the coronavirus pandemic than most other rich economies as it underwent a long lockdown.

Nearly 56,000 Britons have died from COVID-19, the highest death toll in Europe.

Even with recent positive news about vaccines, the Office for Budget Responsibility (OBR) said the economy was only likely to regain its pre-crisis size at the end of 2022 – or later if Britain fails to get a post-Brexit trade deal with the European Union before a transition arrangement expires on Dec. 31.

Sunak made no reference to Brexit in his speech.

YET MORE SPENDING

Since the pandemic struck Britain a few weeks after he took over as finance minister, the former Goldman Sachs analyst has rushed out emergency spending – much of it on pay subsidies to fend off a surge in unemployment – and tax cuts.

The shift away from the traditional economic orthodoxy of the Conservative Party has alarmed some lawmakers.

Sunak said the cost of his measures to fight the coronavirus was now 280 billion pounds for this year, up from a previous estimate of about 200 billion pounds.

Even so, long-term economic damage of roughly 3% of GDP was likely as a result of COVID-19, the OBR said.

Unemployment was likely to peak at 7.5%, from 4.8% now.

With that damage in mind, Sunak sought to stress how spending would rise in the short term as Britain grapples with the fallout from the pandemic.

Over this year and next, day-to-day spending will rise by 3.8% in inflation-adjusted terms, the fastest growth rate in 15 years.

To meet Prime Minister Boris Johnson’s promise of “levelling up” growth around the country, 100 billion pounds will be spent next year on longer-term investments, 27 billion pounds more than last year.

A new national infrastructure bank will be based in the north of England, where many voters broke with tradition and backed Johnson in last year’s election.

Johnson later told Conservative lawmakers at a meeting of the 1922 Committee that he was confident the British economy could bounce back quickly, and that his government would deliver for the people who elected him, a lawmaker attending the meeting said.

The OBR said it would take 1% of GDP of spending cuts or tax hikes to bring the government’s day-to-day spending into line with its revenues. Debt was likely to rise further, to over 109% of GDP in 2023/24, up from about 101% now.

Paul Johnson, head of the Institute for Fiscal Studies think-tank, said the headline numbers were “completely staggering” but hid a squeeze on spending in three or four years’ time which would be challenging to deliver.

Sunak signalled some early cost-saving moves, including the freeze on pay for public sector workers, except for doctors, nurses, other health staff and the lowest-paid public sector workers.

And Britain will save 3 billion pounds a year by cutting overseas aid spending to 0.5% of GDP, a level that remains higher than almost all other rich countries.

The Archbishop of Canterbury Justin Welby said the cut was “shameful and wrong”, former Prime Minister David Cameron said the government had broken a promise to the poorest countries of the world, and the government’s minister for sustainable development resigned.

(Writing by William Schomberg; Editing by Catherine Evans and Jan Harvey)

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