With the economy at a virtual standstill due to the impact of COVID-19, unemployment could continue to increase to more than the 28% registered between February and March, an economist has warned.
Hundreds of people lost their jobs in the weeks following the announcement of restrictive measures that saw many businesses shutting their doors.
While the first few months of partial lockdown have seen a contained rise in unemployment, the longer the period of uncertainty is sustained, the more job losses become inevitable, Philip von Brockdorff, head of the Department of Economics at the University of Malta told Times of Malta.
“So far, the unemployment rate has been manageable, without government measures it would have exploded,” von Brockdorff said.
“But we don’t know for how long we’re going to be under partial lockdown measures, we don’t know if there will be a second wave of infection, we don’t know how long the economy is going to remain partially frozen. It stands to reason that the longer this goes on, the more unemployment is bound to rise.”
And even once restrictions are lifted, because Malta has such a high dependency on the strength of foreign economies, getting the economy back on track was not as straightforward.
“We won’t get back to the way it was,” von Brockdorff said.
“Tourism makes up around 17% of Malta’s economy. In the first few months alone we’re looking at severely restricted overseas travel. Some business owners will decide against taking a loan and cut their losses, which will inevitably lead to more job losses.
“With Malta depending on the economic activities of other countries we might start seeing problems in the supply chain as well,” he added.
Months, maybe even years, to fully recover
“Everything depends on how low it will take us to ease off restrictions and what new work practices will have to be introduced as a result of the pandemic.”
That said, von Brockdorff thinks that the general prognosis for economic activity is not looking good at the moment either way.
“As things stand, I think there are clear indications that we are looking at a recession, one that will be worse than 2008.
“The fear for most is that economic wage supplements and collective agreements will take a long time to be decided and there will be a shift where the focus is on value added productivity rather than wage growth,” von Brockdorff said.
Malta Chamber of SMEs CEO Abigail Mamo said that while the rise in unemployment was of great concern, it was far from unexpected.
She noted that one challenge businesses were facing was that while benefits were promised, funds have been slow to reach business owners.
“Many businesses have not yet received the wage support and they are preparing to issue salaries for the second consecutive month. The initial hesitation of the government to come out with strong enough measures in a timely manner and the current impossible situation have run businesses out of the little liquidity they had available,” Mamo said.
“From an employer’s point of view, having more workers available on the labour market is welcome, but this only when considering the lack of human resources situation that has been with us for a number of years and has led to employers having to source employees beyond our shores. This level of unemployment is harmful to the economy.”
Even if a vaccine were discovered today, at this rate the economic impact of coronavirus is set to outlast its impact on public health, Malta Employers Association director general Joseph Farrugia said.
“Some sectors of the economy will take months, maybe even years, to fully recover. However, these figures confirm that employers in general are doing their best to hold on to their human resources, both in the interest of their respective companies and also due to social considerations,” Farrugia said.
“One challenge in the coming weeks will be deciding on the right time, from a public health perspective, to relax the restrictions on business activity,” Farrugia added.
“I fully understand and support the principle that one cannot make compromises with public health, and that tough decisions in the short-term will reap dividends in the medium-term for business as it will shorten the time that we can return to a new normal.”
Farrugia said they expect the government to extend the schemes to reach more companies which have been affected.
“This new phase may be the most difficult, especially if unemployment continues to increase in the private sector.
“Many companies have retained their labour force through digging in internal reserves, but there is a limit to the extent that this effort can be sustained without government assistance,” he said.