Even as some governments consider extensions to job-protecting furlough programs, the back-to-school period as the continent returns from summer vacation is a crucial time for firms to assess demand, budgets, and headcount for the rest of the year and into 2021.
Temping companies that match workers with employers say that will also determine whether European countries can continue to avoid the sky-rocketing unemployment seen in the U.S. The outlook isn’t positive.
Damage to Come
Unemployment will stay high right through 2021
Source: Eurostat, Office for National Statistics, Bloomberg surveys
While state support has helped the likes of Germany, France, and even Britain, some of that aid is due to expire. At the same time, the initial post-lockdown economic rebound is showing signs of abating, and some sectors are facing long-term shifts that will mean complete rethinks of business models and staffing.
“In September, they see how the order book is looking,” allowing for visibility until the end of the year, said Alain Dehaze, chief executive officer of staffing giant Adecco Group AG, one of the world’s biggest staffing companies. “We expect unemployment to increase because some industries are structurally hit.”
The CEO of human resources firm Randstad also says next month “will probably really show the trend for the rest of the year.”
Even with the extensive furlough programs, the labor market has already taken a massive hit. Nearly half the jobs -- 5 million -- created since the last recession have already been wiped out as a result of the pandemic. An economic rebound is underway after a 12% slump in the second quarter, but it’s expected to lose steam, resulting in more job losses.
Ryanair Holdings Plc shows how the recovery won’t be smooth. Just weeks after increasing flights in response to pent-up demand from holidaymakers, Europe’s biggest discount carrier slashed capacity for September and October after newly imposed quarantine measures discouraged people from booking foreign trips.
While U.S. unemployment has already shot up to double digits, Europe’s numbers look better, for now, thanks to the furloughs. But that won’t last. A Bloomberg survey forecasts the euro-area rate at almost 10% by the end of this year, with very little improvement in 2021.
When “short-time work schemes come to an end, the fairy tale is unlikely to continue,” ING Group economists Carsten Brzeski, Bert Colijn, and Carlo Cocuzzo said in a report this week.
They also noted that while the programs work during cyclical shocks -- such as the lockdowns -- they’ll be less effective for industries undergoing structural change.
That includes the auto sector, which was already in for a seismic shift from combustion engines to electric. Tourism and business travel may not fully recover from the virus for years.
“Hospitality and events, retail, they will bounce back if this is very much COVID-related, we think,” Randstad CEO Jacques Van Den Broek said on an analyst call late last month. “But airlines and travel and automotive are sectors that seriously need to reinvent.”