Itaú BBA - CHILE – Unemployment rate rises 1pp in 1Q20 amid start of coronavirus shock

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CHILE – Unemployment rate rises 1pp in 1Q20 amid start of coronavirus shock

Abril 30, 2020

Weaker job gains and steady labor force growth led the loosening of the labor market

The labor market loosened in the first quarter of the year, on the back of a confidence hit following the 4Q19 social unrest and March’s coronavirus shock, but the increase in the unemployment rate was not as rapid as expected. In 1Q20, the unemployment rate increased 1.0pp over one year to reach 8.2%, below the Bloomberg market consensus of 8.4% and our call of 8.7%. In the Santiago Metropolitan area, the labor market deterioration was somewhat larger with the unemployment rate up 1.2pp to 8.7%. The latter development is understandable given Santiago is the country’s economic hub (most affected by social unrest), while also being home to the largest population affected by social distancing measures. Complementary information provided by the labor ministry show that layoffs increased 36.8% yoy, similar to the print at the close of 2019.

Weaker job gains and steady labor force growth led the loosening of the labor market. While employment grew 0.7% yoy in the 1Q20, slowing from 1.9% in 4Q19, labor force growth remained stable at 1.8%. Participation fell a mild 0.2pp over twelve months to 62.5%. As the economy weakens, participation in the labor force is likely to moderate further, partly curtailing the expected unemployment rate rise. Salaried jobs increased an upbeat 2.9% yoy (2.7% in 4Q19), however, the vast majority of the gains came from informal posts. Self-employment was the main drag in the quarter, decreasing 3.6% yoy (+ 3.1% in 4Q19). Job growth was led by the administrative and support services sectors and health activities, while the impact of the lockdown can be seen in declining teaching posts and hotel and restaurant personnel. As the impact of the coronavirus consolidates, a more widespread destruction of jobs is anticipated, although employment protection policies applied will at least temporarily mitigate the impact.

The deterioration of the global and domestic economic outlook would result in a significant rise in joblessness. We see the unemployment rate averaging 9.0% this year (7.2% last year), while likely exceeding 10% in the coming months. Policy makers will remain attentive to adjust their responses if signs increase that the transitory nature of the shock could become more permanent.

 

Miguel Ricaurte
Vittorio Peretti
 



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