Powering ahead:
Global Wealth Report 2025

Covid-19 one year on: 1.8 million additional long-term unemployed in Europe

As the one-year anniversary of lockdowns across Europe draws near, the narrative around Eurozone labor markets’ perceived resilience is deceiving. Employment-retention schemes propped up more than 25 million workers in the big four Eurozone economies alone in the immediate aftermath of the Covid-19 shock. On the flipside, however, 13.7 million unemployed workers have to a large degree been frozen out of employment. Given the at best gradual defrosting of Eurozone labor markets over the coming year, coupled with the prospects of a jobless recovery, we see a heightened risk that the cyclical labor market shock turns structural, with unemployment stabilizing at an elevated level.

European corporates: (Active) cash is king

European non-financial corporates have seized the opportunity of state-guaranteed loans to build up cash reserves, especially in France, the UK and Italy. Overall, the build-up of cash reserves is positive as it provides buffers for future debt redemptions even if this is not a short-term concern anymore.

QE and the bull market in everything but diversification

The volatility of major asset classes often makes headlines at the risk of overlooking another source of risk: changing patterns in correlations between market segments.

Focusing instead on co-movements between key asset classes:

• Stressing the importance of correlations as a source of risk in a representative portfolio
• Observing that correlations are volatile and tend to magnify the volatility of capital markets during periods of stress
• Seeing in the correlations spikes experienced in 2008 and again in 2020 the footprint of quantitative easing (QE)
• Submitting that one unintended consequence of QE is to curtail diversification opportunities.