The global economy is in a deep recession due to the Corona crisis. Accordingly, the labor markets of the Western industrialized countries are under enormous pressure. A drastic increase in unemployment will be unavoidable in many countries despite all efforts.
At the same time, the labour markets are entering the crisis in very different forms and experience from the financial crisis shows that they do not react to an economic downturn with the same intensity. We expect a particularly sharp rise in the unemployment rate in the USA and in the major Southern European economies. In view of the good employment situation before Corona, the continuing shortage of skilled workers in sectors such as nursing, strong protection against dismissal and, above all, thanks to the generous application of the short-time working scheme, the German labour market is well placed to come through the Corona crisis relatively unscathed.
The worsened situation on the labor market will in turn have a dramatic impact on private consumption and thus on the growth rates of the major Western economies. This is because the rapidly increasing number of unemployed and short-time work is causing the disposable incomes of private households to fall painfully – in Germany as well. This is probably compounded by a damper on wage increases. Even if the „lockdown“ is now being eased cautiously in some countries, consumer demand is therefore likely to recover only relatively slowly.
As a result of the uncertainty and the resulting consumer reluctance to spend, the propensity to save should tend to rise in the US and the UK as well as in Continental Europe. However, companies are unlikely to consider extensive investments in the current situation. In many countries, therefore, the higher savings will probably be used primarily to finance the exploding national debt via stock exchanges or financial intermediaries.
The fiscal measures thus paid for by governments must be used wisely to protect the economy from a downward economic spiral. At present, the clear focus is on combating the pandemic, unemployment and corporate insolvencies. Once the situation is under control, measures to promote consumption will also have to be taken.