Global unemployment set to rise 4.8m in 2016/ 2017 as growth dips

Global unemployment is forecast to rise 4.8m in 2016/ 2017 despite high total unemployment of 197.1m in 2015, which was 27m higher than the pre-crisis level of 2007. Continuing high rates of unemployment worldwide and chronic vulnerable employment in many emerging and developing economies are still deeply affecting the world of work, according to a new report published Tuesday.

The International Labour Organisation (ILO), a UN agency, says in its 'World Employment and Social Outlook: Trends 2016' report says that the unemployment rate for developed economies decreased from 7.1% in 2014 to 6.7% in 2015. In most cases, however, these improvements were not sufficient to eliminate the jobs gap that emerged as a result of the global financial crisis.

Moreover, the employment outlook has now weakened in emerging and developing economies, notably in Brazil, China and oil-producing countries.

The report shows that informal employment — as a percentage of non-agricultural employment — exceeds 50% in half of the developing and emerging countries with comparable data. In one-third of these countries, it affects over 65% of workers.

“The significant slowdown in emerging economies coupled with a sharp decline in commodity prices is having a dramatic effect on the world of work,” Guy Ryder, the ILO’s director general, said.

A global unemployment of 5.8% is forecast for 2016 — the same level as the last two years — due to population growth while the global jobless rate peaked at 6.2% in the peak crisis year of 2009. It was at a pre-crisis low of 5.5% in 2007.

Meanwhile the pickup in global growth is weak and uneven across economies, with risks now tilted toward the emerging markets, says the IMF’s latest World Economic Outlook (WEO) Update, also published Tuesday.

Advanced economies will see a modest recovery, while emerging market and developing economies face the new reality of slower growth.

The WEO Update now projects global growth at 3.4% this year and 3.6% in 2017 (see Table below), slightly lower than the forecast issued in October 2015.

“This coming year is going to be a year of great challenges and policymakers should be thinking about short-term resilience and the ways they can bolster it, but also about the longer-term growth prospects,” said Maurice Obstfeld, IMF chief economist.

”Those long-term actions,” he continued, “will actually have positive effects in the short run by increasing confidence and increasing people's faith in the future.”

Marginal improvements in advanced economies

Growth in advanced economies is projected to rise to 2.1% and to hold steady in 2017, a slightly weaker pickup than that forecast in October.

Overall activity remains robust in the United States, supported by still-easy financial conditions and strengthening housing and labor markets. But there are also challenges stemming from the strength of the dollar, which is causing the US manufacturing sector to shrink marginally.

In the Euro Area, stronger private consumption supported by lower oil prices and easy financial conditions is outweighing a weakening of net exports.

Growth in Japan is also expected to firm up in 2016, on the back of fiscal support, lower oil prices, accommodative financial conditions, and rising incomes.

Emerging markets face growth slowdown

Emerging market and developing economies are now confronting a new reality of lower growth, with cyclical and structural forces undermining the traditional growth paradigm, as Christine Lagarde, IMF chief, pointed out in a recent speech.

Growth forecasts for most emerging market and developing economies reveal a slower pickup than previously predicted. Growth is projected to increase from 4% in 2015 — the lowest rate since the 2008–09 financial crisis — to 4.3 and 4.7% in 2016 and 2017, respectively.

But the Fund says these overall numbers fail to do full justice to the diversity of situations across countries.

India and parts of emerging Asia are bright spots, projected to grow at a robust pace, whereas Latin America and the Caribbean will again see a contraction in 2016, reflecting the recession in Brazil and economic stress elsewhere in the region, even as most other countries in the region will continue to grow. Emerging Europe is expected to grow at a steady pace, albeit with some slowing in 2016, given that Russia could remain in recession in 2016. Most countries in sub-Saharan Africa will see a gradual pickup in growth, but only to rates that remain lower than those achieved during the past decade.

Risks tilted to downside

Looking beyond the short-run forecasts, the IMF says there are important risks to the outlook, which are particularly prominent for emerging market and developing economies and could stall global recovery.

These risks relate mostly to the ongoing adjustments of the global economy, namely China’s rebalancing, lower commodity prices, and the prospects for the progressive increase in interest rates in the United States. They include the following possibilities:

A sharper-than-expected slowdown in China, which could bring more international spillovers through trade, commodity prices, and waning confidence.

A further appreciation of the dollar and tighter global financing conditions which could raise vulnerabilities in emerging markets, possibly creating adverse effects on corporate balance sheets and raising funding challenges for those with high dollar exposures.

A sudden bout of global risk aversion, regardless of the trigger, could lead to sharp further depreciations and possible financial strains in vulnerable emerging market economies.

An escalation of ongoing geopolitical tensions in a number of regions, which could affect confidence and disrupt global trade, financial flows, and tourism. New economic or political shocks in countries currently in economic distress which could also derail the projected pickup in activity.

Commodity markets pose two-sided risks. On the downside, further declines in commodity prices would worsen the outlook for already-fragile commodity producers, and widening yields on energy sector debt threaten a broader tightening of credit conditions.

On the upside, the recent decline in oil prices may provide a stronger boost to demand in oil importers, including through consumers’ possible perception that prices will remain lower for longer.

“All in all, there is a lot of uncertainty out there, and I think that contributes to the volatility,” said Obstfeld. “We may be in for a bumpy ride this year, especially in the emerging and developing world,” he said.

Raising growth still a priority

In this global environment, with the risk of low growth persisting for a long time, the IMF says that the WEO Update underlines the urgent need for policymakers to raise actual and potential growth through a mix of demand support and structural reforms.

Structural reforms, in particular, remain critical. Priorities vary, but many advanced economies would benefit from reforms to strengthen labor force participation (Japan, euro area) and overall employment levels (given aging populations), as well as measures to tackle private debt overhangs.

The Fund says policymakers in emerging markets and developing economies need to redirect activity to new sources of growth. Lifting growth will also ensure continued convergence toward advanced economy income levels.

These economies also need to press on with structural reforms to remove infrastructure bottlenecks, facilitate a dynamic and innovation-friendly business environment, and bolster human capital through reforms to education, labor, and product markets.