S&P : Jobs lost to COVID-19 could be slow to win back

22 April 2020 – Unemployment rates could surge well over three percentage points, or more than twice as much as the average recession, as social-distancing measures hit the engine of job creation across the Asia-Pacific, according to S&P Global Ratings.

In a report entitled “Jobs and the climb back from Covid-19”, S&P Asia-Pacific chief economist Shaun Roache said surging unemployment in the Asia-Pacific means a shallower recovery once the pandemic is contained and, in some economies, credit stress for leveraged households.

“Historical data showed jobs lost are not easily won back,” he said.

Roache said the service sector is the most important employer across the region, and a bigger engine of jobs growth than factories.

He highlighted for the average Asia-Pacific economy, of every 100 workers, 55 work in services, of which 22 work in wholesale and retail trade or hospitality. Only 14 work in the entire industrial sector.

The report said SMEs have created many of these new service sector jobs.

It said firms with fewer than 250 employees account for almost 70% of all jobs in Australia, Japan, South Korea and New Zealand, close to the average for all Organisation for Economic Co-operation and Development economies.

Roache said SMEs usually have fewer resources to draw on to weather an economic sudden stop.

“Access to finance is a perennial challenge for smaller firms, and is likely to worsen when lenders are more uncertain about the outlook and cut back their exposures.

“As revenues collapse, to stay alive, these firms will be forced to cut whatever expenses they can. In many cases, their largest expense will be the wage bill.

“Workers may suffer from a cut in their hours and, as a result, their wages even if they do hang onto their jobs.”

Roache said the rise in unemployment could be larger now than in previous cycles because the downturn is much larger and concentrated in the service sector.

“Job losses will hit households’ debt-servicing capacity, encourage higher savings and lower consumption.

“Australia, South Korea, Malaysia and Thailand appear the most exposed.”