With a looming global recession, spending less is the last thing you should be doing

A calmer and less consumption-driven economy would probably function better for all, writes Hamish McRae, but in the short term it would mean lower incomes and fewer jobs

The current recession looks like it will go deeper than 2009’s – but won’t last as long (Getty/iStock)

How secure is your job? Every day that passes sees more news of job cuts. On Tuesday it was the turn of BP, with 10,000 losses worldwide, 2,000 of which were in the UK. Last week it was Airbus, Bentley and Rolls-Royce. And while HSBC has put its planned loss of 35,000 jobs on hold for the time being, that programme will continue in the months ahead.

The trouble with news stories such as these is that they don’t really give context. Are these losses big in relation to the thousands of jobs going in small and medium-sized enterprises that don’t get the headlines? What is happening to the self-employed? What are the knock-on effects? How quickly will the jobs come back? And, perhaps most troubling of all, what are the long-term effects on young people who have the misfortune to be seeking to enter the job market for the first time?

Looking ahead, we have some sort of template to gauge how bad the next couple of years might be. It is what happened after the financial crash of 2008. In round numbers, US unemployment went from just over 4 per cent in 2007 to touch 10 per cent at the end of 2009, and then fell steadily afterwards.

In the UK, it went from 5 per cent in 2008 to 8 per cent in 2009 and stuck around that level until 2014. In the eurozone, unemployment was already up at over 7 per cent in 2008, shot to 10 per cent in 2009 and then rose further to 12 per cent in 2013 when the Eurozone had a second recession.

You have to take all these statistics with a bit of caution, particularly the European ones. That is not because they are wrong, but because averages conceal huge divergence in economic outcomes. The eurozone was and remains a set of very different economies, with Germany at one end and the so-called “Club Med” countries at the other.

The current recession looks like it will go deeper than 2009’s – but won’t last as long. To be clear, that is my gut feeling rather than any detailed analysis of the various forecasts that are around – but I think at the moment instinct and economic history are more useful than complex economic models. If that judgement is right, what happens to jobs?

If the pattern of the last recession is repeated, unemployment in the US will shoot up to around 10 per cent but then come down fast. The UK will, so-to-speak, share the work around, with unemployment not rising so much, but with incomes held down. And in Europe, there will be huge differences, with Germany bouncing back fast but Italy, Spain and Greece struggling to contain the damage.

A template is only a template – this recession will not be an exact fit with the last one. So what might make the outturn regarding unemployment better, and what might make it worse?

Again, this is intuition but it may well turn out that the policy response to this crisis will be more effective than last time. However, the social impact of the lockdowns will make it harder for economies (and jobs) to recover.

Policy will be better because we have had the experience of 2008-9. Money has been pumped into the world economy by the central banks and governments are borrowing on an even greater scale than before. There will be long-term costs but that will have to be dealt with later. In the short-term, jobs are being protected. Europe, in particular, is being much more active now than it was in 2009, both with national schemes and the proposed EU-wide one. France, for example, has just revealed huge support for the aircraft industry, while Germany has agreed a €130bn stimulus package.

We cannot know how effective all these efforts will be, but I think it is fair to say that governments everywhere have gone towards the limits of what they can do.

But governments are not all-powerful. Much of the response depends on how we as individuals react in the months ahead, and in particular whether we spend or save.

We know that savings everywhere have shot up, even in the US, as you would expect when people are cooped up at home. But in the countries where the lockdown is being eased, there does not seem to be any surge in spending. Maybe it is too early to say, but several European countries are ahead of both the UK and US in opening up and as yet there is no burst of pent-up demand. As people actually lose their jobs, as opposed to reading about job cuts in the news, the willingness to spend may become even more curtailed.

There is a further twist. Maybe one effect of the lockdown is for people to re-evaluate their lives and ask whether they need to spend so much anyway. All of us have realised what we really care about and what seems froth. You don’t have to listen very hard to pick up people saying that some aspects of the lockdown have been rather welcome. On a long view as to how our societies might develop, a calmer and less consumption-driven economy would probably function better for all. But in the short-term, it would mean lower incomes and fewer jobs.

Younger people are most affected by the recession. Ironically, those least at risk in health terms from the virus are those hardest hit in economic terms. Eventually, the economies will recover, but we have to hope that we start spending again soon. A bout of rising unemployment at the beginning of a career will put people at a disadvantage for life. I’m not sure anyone wants to go through that.