Global financial markets have been on roll since middle of 2012, on the back of significant liquidity injection by major global central banks.
However, there is a significant disconnect between the markets and the underlying reality. The chart below shows the number of unemployed people across the world.
Chart 1: The number of unemployed People across the world in millions
Source: ILO Data till 2013 and decimal point Analytics Estimate for 2014
The above chart clearly shows that global employment has not at all recovered from the shock it received in 2008-2009. Although, it seemed for a while in 2010 and 2011 that policymakers had been able to arrest the negative trend, the tables have turned since 2012, with the number of unemployed increasing sharply both in 2012 and in 2013. Our research at Decimal Point Analytics shows that there are no factors, which could help reverse the trend in 2014. In fact, we predict a worsening employment situation globally following Fed’s recent actions, and ineptitude of many emerging market policymakers in adapting to the trickling down of capital flows.
This situation is in contrast with the headlines in media, driven mainly by changes in reported unemployment in the USA. With such weak employment situation, it will be interesting to see how long liquidity flows from freshly minted money hold up the risk-on scenario which markets are witnessing right now, notwithstanding the recent hiccups over emerging markets.