Southern European Economies Face Highest Unemployment in Western Europe

Western Europe was among the most adversely affected regions worldwide by Coronavirus (COVID-19), as the implementation of strict social distancing and temporary quarantine measures led to significant economic decline in 2020. Many frontline workers and employees have lost them due to disruptions in business activities, shocks in the economy have been observed that has led to a rise in the rate of unemployment.

As a result of the expected regional 8.6% real GDP dip over 2020, Western European countries are exposed to rising unemployment levels, which depend on the willingness of countries to tackle the pandemic, including the efficacy of government policies to secure jobs in the private sector. Increasing unemployment rates would lead to a decline in consumer confidence and business confidence over the medium term, further weighing the potential for economic growth.

Southern Economies Confront the Highest Unemployment Rate:

Source: The Organization for Economic Co-operation and Development

Due to rising COVID-19 cases, Greece, Spain, Italy and Turkey face the highest unemployment rates in 2020 respectively. Poor creditworthiness, High debt-to-GDP ratios, industrial orientation towards small and medium-sized enterprises as well as high dependence on tourism revenue and some of the lowest percentages of the population employed in the public sector are all burdened by the ability of these countries to cope with the pandemic, leading to higher levels of unemployment.

Governments have introduced a number of fiscal as well as monetary and macro-financial measures to address rising unemployment. For example, the Spanish Government has introduced changes to corporate resolution frameworks aimed at reducing insolvency cases, extended government guarantees to companies and self-employed workers, and improved unemployment protection conditions for workers employed under permanent discontinuous contracts.

In contrast to the Southern European countries, during the outbreak of COVID-19, the United Kingdom and Germany managed to keep the unemployment rate under control, mainly through furlough and short-term work programs, while Norway benefited from a large public sector. However, as the UK furlough program is set to expire in October 2020, the country's unemployment rate is expected to rise and reach a peak in the fourth quarter of 2020.

Furthermore, given that there is still a possibility that no trade agreement between the UK and the EU will be achieved by the end of 2020, although monetary ability will remain small, with interest rates close to zero and public debt already exceeding the size of the UK economy by 2020, the limited government response is foreseen, resulting in more projected disruptions to the labor market and to consumers and companies.

“Most Western European countries have quickly expanded short-time work schemes, in which employers receive a subsidy for temporary reductions in hours worked. Essentially, wages are paid by governments to prevent unemployment and to preserve matches between workers and employers. Enrollment in these schemes has risen to unprecedented levels”

- IZA World of Labor

Fatpos global predicts that the coronavirus outbreak will have a long-lasting impact on the economies worldwide. Majority of countries have faced severe unemployment rates in the current fiscal year and will take a considerable time to revive. Suitable government schemes and initiatives may uplift the current economic situation in the future.