As we begin the second quarter of 2010, I recently interviewed the economist and media commentator
Mitul Kotecha to get his views on the economy and employment market at the end of quarter one.
Mitul is a regular guest on TV news channels CNBC and Bloomberg TV to discuss his views on the global economy and is frequently quoted in publications such as the Wall Street Journal and the Financial Times. He also shares his views on the economy and global markets at his blog, The Econometer.
As you'll see from the transcript of the interview below, he's still cautiously optimistic about the prospects for 2010 and predicts a slow drawn out recovery with plenty of hiccups along the way.
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Sital:
Mitul, when we spoke in December to look at your predictions for 2010, you were cautiously optimistic about economic recovery in 2010. What's your take on things after the first quarter?
Mitul: Sital, I am still cautiously optimistic but I think we have to be realistic that an economic and jobs recovery will be a long drawn out process. So far economic data releases support the view that recovery is increasingly taking hold but it is looking increasingly clear that it will be slow, especially in Western economies.
There are still too many obstacles to a strong recovery in the months ahead, including ongoing consumer deleveraging (or paying down debt), high unemployment, tight credit conditions and weak confidence.
In emerging markets, the picture is much brighter, with China and India leading the charge, something that is set to continue over the coming months across the emerging markets spectrum.
Sital: How serious are some of the clouds hanging over the recovery? E.g. US and European debt issues, the severe problems in Greece and high unemployment rates in the west.
Mitul: When we last spoke a major market concern was debt problems in Dubai. This however, was just the tip of the iceberg and since then there has been an even bigger shift of concern from credit risk to sovereign risk.
European leaders have finally agreed to provide a lifeline to Greece, but many other countries in the Eurozone remain vulnerable, albeit not to such a large degree, and it will not be easy to provide such help to every country that asks for it. As you note in your question, even the US suffers from a huge fiscal deficit and rising debt levels.
What this all means is that governments will have to cut back on spending and increase taxes, both of which will slow economic recovery.
Sital: So is a "double-dip recession" still a possibility?
Mitul: A "double-dip" scenario is still a very real possibility. I have been touring Asia visiting clients since the start of the year and have been particularly surprised by the extent of pessimism towards economic prospects, especially towards the US, Europe, Japan and UK.
Many believe that a "double-dip" or "W" shape profile for economic growth is not just a possibility but a very real prospect. I personally believe that this scenario is too pessimistic but do agree that any recovery will be a slow one and in terms of shapes a "U" shape is more likely.
Sital: We've seen some slow, but encouraging movement in the unemployment numbers across most western economies. How quickly do you see the situation improving in the coming months?
Mitul: I have been pleasantly surprised at the drop in the unemployment rate in the US to below 10% but believe that it will take a long time for a sustained improvement in job market conditions, not just in the US but in other developed countries. I suspect that unemployment will remain relatively high as employers remain cautious to hire at a time when recovery remains so fragile.
However, much depends on the type of industry considered. For instance, there are already plenty of signs that financial firms' hiring is picking up again. Those banks that were aggressive in cutting staff now find themselves ramping up hiring again to rebuild. This is particularly evident in Asia where many banks are expanding operations to plug into faster growth in China. However, even in the US and UK there are signs of jobs recovery, albeit less marked.
Sital: What's your view on the "underemployment" factor in these numbers - i.e. how much unemployment is 'hidden' by people working reduced hours, part-time work, students staying on at college? Should we be concerned by this?
Mitul: This is a major concern and a key reason why I believe that it will take a long time before there is a sustained drop in the unemployment rates in the major economies. For instance, in the US a recent measure of underemployment (Gallup poll) estimated the rate at 20.0%, that's more than double the official unemployment rate.
So you can see how severe the problem is. As the economy improves many of these workers will be drawn back into the work force, implying a much smaller and more prolonged period of time for the unemployment rate to drop.
Sital: Across Europe we've seen the beginnings of strikes and industrial unrest resulting from pay freezes and the rise in cost of living squeeze in. How serious are these in the overall landscape of the recovery? Do you predict more unrest?
Mitul: I believe the austerity measures that will need to be carried out in many European countries will spark further unrest but unfortunately this is the cost that will need to be faced in order for governments to get their fiscal houses in order.
Should governments not carry out drastic spending cuts, the ultimate consequences could be severe on the economy and on the credit standing of the country. The unfortunate consequence will be to slow the economic recovery process.
Sital: During Q1, I've seen the interim management and contract recruitment markets grow steadily - which is usually a sign that recovery is in progress as firms hire without making commitments to permanent contracts.
But I sense it's part of a structural shift in employment patterns which will see more and more people being freelancers in some shape or form. What's your view on this?
Mitul: I think companies want to retain a large degree of flexibility in hiring given the many uncertainties in the months ahead. In countries such as the UK and US the ability to hire/fire workers is more flexible but in much of Europe as well as Japan, restrictive labour laws mean that employers do not want to get tied down. Nonetheless, as economic growth gathers steam I see a gradual return to more traditional permanent contracts.
Sital: What are your predictions for the coming months for the economy and employment market?
I look for a gradual decline in unemployment rates in developed economies as well as a further improvement in economic conditions. I still think there will be plenty of hiccups on the way as the recent saga surrounding Greece has shown us. The good news is that companies are setting themselves up for recovery and although the recovery process remains slow, employment conditions will continue to improve.
Perhaps it is because I see a lot of on-the-ground evidence sitting here in Hong Kong, but regionally Asia offers the strongest opportunities as economic growth has already recovered strongly and unlike the problems faced in the West, Asian growth looks set to be pushed higher by China and India. Even Australia is benefiting from the strength of demand in China, helping its economy to avoid a sharper downturn.
Sital: What challenges and opportunities lie ahead for firms with regard to recruitment and retention of employees in the coming months?
Mitul: The biggest risk for companies is complacency. At present, there is plenty of choice and a ready pool of available labour. But as conditions improve the pool will dry up and employers who wait too long will miss the boat.
It will also be essential to retain staff and the test for companies will be whether motivation can be maintained at a time when economic conditions remain weak. The risk is that companies may take a relaxed view of retention given the high unemployment rate, but this would be a mistake. In order to steer a path through the economic malaise in existence today companies need to motivate and energise staff otherwise they will run the risk of falling behind.
Sital: And what about job seekers - what message would you leave with those planning a change in the coming months?
Mitul: As the jobs market picks up there will undoubtedly be more opportunities. I can speak for the industry I work in which is banking and already it appears that hiring is picking up in certain areas.
My advice is to plan properly and to ensure that any job opportunity is researched carefully. First and foremost I would suggest making sure that any holes/gaps on a CV can be explained properly. Employers will look more favourably on those that have made wise use of any time out of work.
There will be opportunities but also plenty of competition. Rather than being a source of discouragement, this means that jobseekers need to be on their game to benefit from the inevitable turnaround in job conditions.
Finally, perseverance is essential because ultimately there will be a job out there even if it doesn't appear as quickly as it would have done in the past.
Sital: Thanks for your time Mitul. If readers want to keep up to date with your views on the economy and markets, where should they go?
Mitul: You're welcome. If your readers head over to my personal blog, The Econometer, I post my views on events within the economy and financial markets several times a week. Here's the link:
http://econometer.org/.
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Based in Hong Kong, Mitul Kotecha is Managing Director and Global Head of FX Strategy for a large European Investment Bank. You can follow Mitul's views on the economy and financial markets at his personal blog,
'The Econometer'
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