Although global economic growth is slowly picking up and vaccinations are being rolled out, research shows that for emerging markets employment recovery will take longer to get back to pre-pandemic levels. And countries’ prospects depend on how fast they can inoculate their citizens.
According to a research note by retail banking company BNP Paribas, the 2021 economic recovery will not offset unemployment, because jobs will only improve by 4 percentage points below pre-pandemic levels.
The improvement will not be enough to compensate for about 9% of jobs lost in the emerging market in 2020. “Joblessness has surged in these EMs [emerging markets] since the pandemic, and their recoveries are likely to take longer,” said the research note. The group estimates that a 17% hit on the wages in these markets is also posing a hurdle to economic recovery because people do not have enough money to spend.
“Domestic savings rates are already low in countries with high joblessness. We expect sustained spikes in unemployment to depress savings further, primarily due to weak household finances rather than a greater propensity to consume,” the bank said.
These numbers are in line with last year’s estimate of a 1.5 percentage point rise in unemployment in emerging markets to 7% in April and predictions of it reaching more than 8% in May. “Nearly 40% of EM workers are employed in sectors that have been heavily hit by the pandemic, suggesting that the fragility may linger as Covid-19 restrictions remain in place,” the research found.
In quarter one of 2021, about 30% of countries globally still imposed restrictions on non-essential services, which effectively closed down many businesses.
Although the share of countries under lockdown dropped from 90% in April last year, BNP Paribas flags that in most emerging markets, the mobility restrictions effectively prevent businesses from operating normally, hindering job prospects.
“The economic outlook for South Africa, which is also a laggard with respect to the pace of vaccinations, is perhaps the most concerning among major EMs. Beset with large structural weaknesses pre-Covid, its labour market is likely to weigh on recovery prospects,” according to the research.
To help improve the country’s economic recovery, President Cyril Ramaphosa moved the country to lockdown level one this month to increase economic activity, which could improve the country’s gross domestic product.
The economy has recovered 40% of the 2.2 million jobs lost at the height of the pandemic. This widening has seen unemployment rates worsen to a record 32.5 % in quarter four of 2020, or 42.6% when considering workforce dropouts.
As lockdown measures have been loosened, labour force participation has begun to normalise. But the absorption rates of jobs remain low.
The World Bank notes that about 25% of emerging market jobs were already vulnerable to sudden layoffs before the pandemic. Jeff Schultz, a senior economist at BNP Paribas South Africa, said the country should not underestimate the scarring done to the consumer or the time it will take to heal the country’s labour market. He added that the International Labour Organisation’s statistics placed South Africa as one of the few emerging markets to experience a real fall in wages during 2020.