MADRID, SPAIN – APRIL 06: A butcher wearing a mask is seen working at the Butchers ‘Carnes de Pedraza’ in Alpedrete on April 6, 2020 in Madrid, Spain.
Spain and Italy may be equally hit by the coronavirus pandemic, but the first can see a greater impact on its workforce, according to International Monetary Fund.
Spain’s job situation is predicted to deteriorate faster than Italy this year. The unemployment rate can reach 20.8% – an increase from the October forecast 13.2%, The latest World Economic Outlook shows. In comparison, Italy’s unemployment rate is seen at 12.7% in 2020, from 10.3% in October.
“The problem in Spain is that they have a much larger share of workers on temporary contracts. In the previous crisis we also saw a very rapid increase in unemployment, with employees with temporary contracts bearing the biggest burden,” Maartje Wijffelaars, senior RaboResearch Economist in the Netherlands, told CNBC Tuesday.
Spain has grappled with high unemployment for years and it is one of the main legacies of the 2011 sovereign debt crisis. At the height of the crisis, more than 26% from the population of Spanish workers out of work. In contrast, Italy’s unemployment rate does not exceed 13%, according to the European Union statistical office.
Although Spain has succeeded in lowering these levels, the country’s labor market is in a more dangerous situation than Italy before the pandemic struck. In February, 13.7% Spanish workers are unemployed versus 9.8% in Italy.
The two countries implemented national lockdown in March to help stop the spread of Covid-19. This policy effectively stopped economic activity, with people only allowed to go outside to buy food and medicines.
“We expect surprises in the first quarter to be worse for Italy than in Spain, because the outbreak hit Italy earlier this year and lockdown measures were implemented earlier,” said Wijffelaars from RaboReseacrh.
However, he added that the economic shock in the second quarter would be greater in Spain “because the hardest hit sectors such as tourism and hospitality are more important to the Spanish economy than to the Italian economy.”
Data from Spanish Ministry of Manpower shows that in March, the construction sector saw 22.92% of newly unemployed people and the service sector saw the highest increase in absolute terms.
Madrid is more ‘responsible’ than Roma
However, some economists are optimistic that the government in Madrid will know how to overcome the economic impact of the pandemic.
“I hope the government proves quite responsible when trying to get out of this crisis when it comes to economic problems,” Anna Rosenberg, head of Europe and Britain at the Signum Global think tank, told CNBC Tuesday.
He mentioned that the controversial move in Spain to restart some construction and industrial production work Tuesday was “clearly an economic decision.”
Prime Minister Pedro Sanchez Spain has said that it wants to find agreement with other political parties regarding the “big pact for economic and social reconstruction” of the country.
“The fact that the new government is reluctant to announce an enormous fiscal stimulus against Covid-19, shows you they are reluctant to direct the fiscal situation to negative territory again,” Rosenberg said.
Italy also has a greater fiscal stimulus in the form of deferral and other liquidity measures. Italy has a debt to GDP ratio (gross domestic product) of around 130%, while Spain is under 100%.
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