MADRID, SPAIN – APRIL 06: A butcher wearing a mask is seen working at the ‘Carnes de Pedraza’ Butcher in Alpedrete on April 06, 2020 in Madrid, Spain.
Spain and Italy may have both been hit hard by the coronavirus pandemic, but it’s the former that could see a greater impact on its workforce, according to the International Monetary Fund.
Spain’s jobs situation is predicted to deteriorate more quickly than Italy’s this year. Its unemployment rate could reach 20.8% — an increase from an October forecast of 13.2%, the latest World Economic Outlook showed. In comparison, Italy’s jobless rate is seen at 12.7% in 2020, from 10.3% in October.
“The issue in Spain is that they have a much larger share of workers on a temporary contract. In the previous crisis we also saw a very rapid rise in unemployment, with employees on a temporary contract bearing the largest brunt,” Maartje Wijffelaars, senior economist at RaboResearch in the Netherlands, told CNBC Tuesday.
Spain has grappled with high unemployment over the years and it was one of the main legacies from the sovereign debt crisis of 2011. At the height of that crisis, more than 26% of the Spanish working population was out of a job. By contrast, Italy’s jobless rate did not surpass 13%, according to the EU’s statistics office.
Even though Spain has managed to bring those levels down, the country’s labor market was already in a more precarious situation than Italy’s before the pandemic hit. In February, 13.7% of Spanish workers were unemployed versus 9.8% in Italy.
Both countries implemented national lockdowns in March to help stop the spread of Covid-19. This policy effectively brought economic activity to a halt, with people only allowed to go outside to purchase groceries and medicine.
“We expect the shock in the first quarter to be worse for Italy than in Spain, as the outbreak hit Italy earlier in the year and lockdown measures were implemented earlier,” Wijffelaars from RaboReseacrh said.
However, she added that the economic shock in the second quarter will be larger in Spain “as most heavily hit sectors such as tourism and hospitality are more important for the Spanish economy than for the Italian economy.”
Data from the Spanish labor ministry showed that in March, the construction sector saw 22.92% of newly unemployed people and the services sector saw the highest increase in absolute terms.
Madrid more ‘responsible’ than Rome
However, some economists are optimistic that the government in Madrid will know how to address the economic impact from the pandemic.
“I expect the administration to prove pretty responsible when trying to get out of this crisis when it comes to economic matters,” Anna Rosenberg, head of Europe and the U.K. at the think tank Signum Global, told CNBC Tuesday.
She mentioned that the controversial step in Spain to restart some construction work and industrial production Tuesday was “clearly an economic decision.”
Prime Minister Pedro Sanchez of Spain has already said that he wants to find an agreement with other political parties over a “great pact for the economic and social reconstruction” of the country.
“The fact the new administration has been reluctant to announce a very large fiscal stimulus to fight Covid-19, shows you they are reluctant to tip the fiscal situation into negative territory again,” Rosenberg also said.
Madrid has announced an immediate fiscal impulse of 8.8 billion euros ($9.6 billion). In comparison, Rome has put forward 16 billion euros in immediate fiscal stimulus, according to the Brussels-based think tank Bruegel.
Italy also has a larger fiscal stimulus in the form of deferrals and other liquidity measures. Italy has a debt-to-GDP (gross domestic product) ratio of about 130%, whereas Spain’s sits just below 100%.