China’s unemployment rate will hit a record high in the coming months with youth unemployment surging to 23%, says Bank of America.
The jobless rate in big cities will likely exceed 7% and the rate among people aged 16 to 24 may jump to 23% in July and August, wrote economists Pi Xiaoqing and Helen Qiao in a June 6 note. The shock to the labour market from Covid lockdowns has ”crippled businesses,” they added.
“The shock on [the] labour market appears deeper, broader and more long-lasting than that in 2020,” they wrote. That’s because “more industrial hubs are likely impacted during the peak production season, and sectors which picked up the job market slack back then are losing steam,’’ they said.
They expect the nationwide unemployment rate to breach 6.5% in coming months, compared with 6.1% in April, before falling below 6% when Covid-zero restrictions eventually ease.
The unemployment rate in 31 major cities rose to a record high 6.7% in April as big cities including Shanghai were locked down, while youth unemployment rose to 18.2%. The jobless rate of migrant workers rose more sharply than those of locals, the economists said.
READ MORE: China Economy in Worst Shape in 30 Years, Says PAG – FT
Gauges to Deteriorate
“We expect these gauges to continue to deteriorate in the near future,’’ said Pi and Qiao. “Labour market indicators usually lag the co-incident and leading economic activity indicators by months, and are unlikely to bottom out before economic growth bounces back.’’
The official gauges also likely undercount the stress on the ground, they added.
New recruitment, informal hiring and income growth are the areas of most stress and are likely to decelerate notably right away, the economists said. Fresh college graduates, flexibly employed individuals and migrant workers will be hit by “the shockwave first,” they said.
In the first quarter this year, there was a 0.71 vacancy rate for each graduating job seeker, the lowest ratio since the record began in 2018, according to online recruiter Zhaopin Ltd. The pressure may be worse this quarter and next, when most students graduate, BofA says.
China Unemployment ‘Complex and Grim’
Premier Li Keqiang has called the labour market situation “complex and grim,” especially in big cities and among young people. He urged local governments to “use all available measures” to stabilise the economy and prioritise employment, and the State Council rolled out a policy-easing package to prop up growth on May 23. It includes improving social security payments.
But BofA says the “same-old policy playbook may prove insufficient” this time.
“Given the absence of substantial waivers to social security payment or notable measures to support migrant worker employment, announced measures are likely to prove insufficient,’’ said Pi and Qiao “The government will need to consider more aggressive measures to contain the unemployment and mitigate income and consumption losses.”
They said targeted wage subsidies and cash handouts would prove more efficient in stabilising employment and consumption.
- By Kevin Hamlin
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