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A groundbreaking resource for companies as they assess market investments and global labor strategies. This report is a proprietary blend of Kelly\'s labor market knowledge with Eurasia Group\'s expertise in political and socio-economic risk analysis
Citation preview
asia Pacific
Think ouTside.
Global Market Brief & Labor Risk Index
2011 2Tokyo Bay, Tokyo, Japan © 2009 Robert Churchill
2 | GloBal MarkeT Brief & laBor risk index Q2 2011
Overview: Asia Pacific
asia Pacific
overview
risk index
australia
Bangladesh
china
hong kong
india
indonesia
Japan
Malaysia
new Zealand
Philippines
singapore
south korea
Thailand
Vietnam
aBouT sPonsors
consumers tighten their belts and
shift toward lower-cost products.
For governments in the region, the
general goal will be to normalize
monetary policies that were primed
for growth during the financial crisis,
but this is happening only slowly.
The risk is that inflation has already
become too pervasive, and that
governments around the region
could be facing more persistent
price rises in coming months.
A major inflation driver Asian
governments are struggling to
address is higher international
energy and commodity prices—a
result of recent unrest in the Middle
East, plus a rebounding global
recovery. Policy differentiation over
how to manage inflation will mean
more volatility in exchange rates,
growth rates, and manufacturing
➔ Inflation is the preeminent
challenge for most Asian
governments this quarter, the result
of years of expansionary monetary
policies, government initiatives to
limit currency appreciation, upward
wage pressures, higher international
energy and commodity prices,
and food shortages. Resulting
higher prices for a range of goods
like fuel, basic commodities, and
housing will likely shift job growth
away from higher-end and luxury
sectors in coming months, as
costs across Asia. Today, many Asian
governments intervene in energy
prices to protect households and
industry from price volatility. But as
resource prices rise, the costs of this
intervention will grow.
In some countries, such as the
Philippines and Indonesia, where
budget constraints are real and
affect economic volatility, the
government’s capacity to continue
these interventions is limited,
meaning higher input prices,
manufacturing costs for industry,
and potentially less discretionary
incomes for consumers there.
Other countries, including China,
Malaysia, Singapore, and Thailand,
will likely allow some more gradual
currency appreciation to offset
higher energy import costs.
■ ■ ■
3 | GloBal MarkeT Brief & laBor risk index Q2 2011
asia Pacific
overview
risk index
australia
Bangladesh
china
hong kong
india
indonesia
Japan
Malaysia
new Zealand
Philippines
singapore
south korea
Thailand
Vietnam
aBouT sPonsors
very positive trend
positive trend
negative trend
very negative trend
for all variables, scores range from 1 to 10, where 1 is ‘high risk’ and 10 is ‘low risk’.
asia Pacific – risk index suMMary TaBle – Q2 2011
Macro risks laBor risks
Political social security economicforeign
investmentflexibility availability Quality contentment
Australia 8 Y 9 9 8 9 8 6 8 8
Bangladesh 4 Y 4 6 3 3 Y 5 5 1 2 YChina 7 Y 5 Y 9 6 6 Y 4 5 7 4
Hong Kong 9 8 10 7 Y 10 6 6 8 7 YIndia 7 Y 4 7 6 XX 5 5 5 1 3
Indonesia 6 6 8 4 3 Y 4 5 3 4
Japan 4 Y 9 10 5 7 5 4 8 Y 7
Malaysia 7 4 9 5 X 7 7 4 7 X 7
New Zealand 8 8 10 6 Y 9 8 6 8 7
Philippines 6 X 3 7 5 X 4 5 5 4 6 YSingapore 9 X 8 8 8 Y 10 7 5 Y 8 9
South Korea 7 8 6 7 8 4 5 Y 8 6 YThailand 5 X 4 Y 7 6 7 7 5 Y 5 7
Vietnam 7 6 8 4 6 6 5 Y 4 5
4 | GloBal MarkeT Brief & laBor risk index Q2 2011
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
hiGh risk
On 24 February, Prime Minister Julia Gillard announced the government’s intention to put in place a three- to five-year fixed carbon tax that would later transition to an emissions trading program. Details must still be worked out and the road to passage will not be smooth, but the plan will most likely pass parliament. Transitional assistance to industry is probably inevitable, especially to trade-exposed sectors such as manufacturing and LNG, which will mitigate the tax’s negative effect on employment.
Australia
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trading partner—is expected
to shave about a quarter of a
percentage point from GDP growth
in the 2010-2011 fiscal year. Despite
a short-term negative impact from
these natural disasters, rebuilding
in both Queensland and, more
importantly, Japan, will generate
strong demand and employment
in the country’s already booming
resources sector.
The mining and LNG boom in
Australia has had a dramatic impact
on job creation. According to the
Australian Bureau of Statistics, the
economy created 362,800 jobs
during the first 11 months of 2010,
➔ Australia’s economy grew by
2.7% in 2010, but Treasurer Wayne
Swan stated on 2 April that the
December and January cyclones
and flooding in Queensland and
elsewhere would cost the economy
AUD 9 billion ($9.4 billion). In
addition, the main economic impact
of the summer floods is likely to
be felt in the first quarter of 2011,
particularly with a major slowdown
in coal exports. And the massive
March earthquake and tsunami in
Japan—Australia’s second-largest
while the natural disasters at the
end of the year resulted in just
2,300 job cuts. The surge in mining
sector activity is raising risks of a
skills shortage and placing upward
pressure on wages. Mining wages
jumped 4.6% in 2010 (compared to
an economy-wide increase of 3.9%).
Industry pressure for a loosening
of restrictions on the skilled worker
visa program is mounting. Although
immediate changes may not be
forthcoming, an expansion of visa
allocations is likely later this year or
early next year.
■ ■ ■
5 | GloBal MarkeT Brief & laBor risk index Q2 2011
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
hiGh risk
The textile sector continues to suffer from labor discontent and unrest. In July 2010, the government raised the monthly minimum wage from $23 to $43, but this fell short of union demands ($70) and lags minimum wages in other Asian textile manufacturers. High inflation has also undermined the wage increase. Tens of thousands of textile workers are taking to the streets to demand better enforcement of the new minimum wage and another increase.
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Bangladesh growth of remittances has stalled,
inching up to $5.55 billion during
the first half compared to $5.53
billion during the same period a
year earlier. A second problem is
annualized inflation that has climbed
due to high food prices hitting
8.14% in November 2010 compared
to 8.12% in the previous month.
The government is increasingly
concerned about the impact of
social unrest in the Middle East
on the domestic labor market.
Bangladesh’s annual employment
growth (1.6%) has been unable to
keep up with the increase in the
size of the labor force (4.7%). As a
result, large numbers of Bangladeshi
➔ The Bangladeshi economy
is likely to be pressured by two
concerns. First, the country’s balance
of payments swung to a $686 million
deficit during the first half of the
2010—2011 fiscal year from a $2.09
billion surplus during the same
period a year earlier. This deficit was
caused by a sharp 37% year-on-year
increase in imports in the first half of
the fiscal year. Bangladesh routinely
runs a trade deficit but growth in
remittances has kept the overall
balance of payments in surplus. But
youth are seeking employment in
the Middle East—particularly in
Saudi Arabia and Kuwait—and in
Malaysia. It is estimated that around
6 million Bangladeshis are working
abroad. The Bangladeshi authorities
are concerned that the recent
economic discontent and social
unrest in several Middle Eastern host
countries could disrupt the export of
surplus labor and could potentially
lead to the return of immigrant
workers to Bangladesh. This would
put additional pressure on the
government to create jobs.
■ ■ ■
6 | GloBal MarkeT Brief & laBor risk index Q2 2011
very positive trend
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Beijing will likely respond to higher inflation by accelerating the nominal appreciation of its currency, which will allow the government to mitigate imported inflation driven by rising international commodity and energy prices. While Beijing is unwilling to implement a fast-enough rate of appreciation to fully offset these dynamics, any appreciation could reduce the level of China’s trade surplus with the US, which will help reduce tension with the US over currency issues.
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China Growing inflation could lead to
more rate hikes or encourage
faster income growth to keep pace
with consumer prices. Numerous
provincial governments, especially
along the coast, have already
rushed to raise minimum wages.
This will increase the cost of labor
there, and rising costs could spread
to other provinces.
Not only is Chinese labor becoming
more expensive, but it is also
shifting into new sectors, driven by
government policy. Beijing formally
ratified its 12th Five-Year Plan in mid-
March, an important goal of which
➔ Policymakers continue
to wrestle with inflation. Yearly
consumer price inflation clocked
in at 4.9% in February, unchanged
from January, and economists are
expecting it to climb. In response,
Beijing has raised banks’ reserve
requirement ratios to 20.5% with
a string of successive hikes. On 4
April the government also raised
interest rates for the fourth time
since October 2010.
is to develop a vibrant services
sector. As China rebalances away
from relying on exports, it is trying to
absorb workers and create new jobs
in an expanded services sector. The
new plan calls for creating 45 million
new jobs by 2015—a tall order that
requires the development of new
industries and job opportunities. The
service sector is an obvious choice
for job growth, as the industrial
sector is approaching saturation.
A more services-based economy
also uses less energy and develops
human capital.
■ ■ ■
7 | GloBal MarkeT Brief & laBor risk index Q2 2011
very positive trend
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Under public pressure to alleviate income inequality, the Hong Kong government in mid-March passed an interim budget that authorized $5.2 billion in tax and cash rebates, including $770 payments for all citizens. The populist measure, which received final approval on 15 April, is expected to increase consumption by 1.4 percentage points but will also stoke inflation and increase public demands for more such moves in the future.
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Hong Kong A large property bubble is an
added concern on this front.
House prices are up nearly 50% in
the past two years.
On the labor front, Hong Kong
remains a bright spot. Seasonally
adjusted unemployment dropped
to 3.6% in the three months ending
in February 2011, a two-year low
and a significant improvement
from the already-low 4.3% average
unemployment rate for 2010. Job
growth continues in finance and
financial services, consumer retail,
tourism, and hospitality. Meanwhile,
there were 36 million tourists in
2010, a 22% increase from the
➔ The Hong Kong economy
continues to grow rapidly, driven by
a rebounding financial sector and
strong economic performance in
mainland China. The government
still expects growth of 4%–5%
in 2011. Policymakers, however,
face an immediate challenge in
cooling inflation. City officials
expect 4.5% inflation in 2011, with
private estimates of above 5% for
the year. Near-term concerns are
driven by a mixture of rising energy
and commodity import prices and
higher labor and food costs.
year before. Retail sales also
rose 18.3% in 2010.
For employers, recent changes
in Hong Kong labor laws bear
monitoring. On 1 May, Hong
Kong’s first-ever mandatory
minimum wage law will go into
effect, with the wage rate set at
$3.60/hour. The move—which has
been politically contentious in Hong
Kong for months—also carries near-
term economic risk. Specifically,
higher mandatory wages will raise
labor and manufacturing costs,
further amplifying inflation concerns
over coming months.
■ ■ ■
8 | GloBal MarkeT Brief & laBor risk index Q2 2011
very positive trend
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Progress on labor reforms will remain slow because of competing pressures on the government. Industry requires a larger and more flexible skilled work force, and is calling for changes, particularly on more flexible working hours. Labor unions, however, fear that reforms will lead to exploitation and weaken their position. Large union-led protests were held in early-February in New Delhi. Further isolated unrest is likely, particularly if the government pursues labor reforms without first building political consensus.
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India likely increase and a delay in the
implementation of subsidy reforms
is also likely. Meanwhile, the budget
fails to provide specifics on major
fiscal and economic reforms—
notably, it does not establish a
timeline for the delayed goods and
services tax (GST) or a roadmap
for disinvestment in state owned
companies. Finally, the budget
does not propose any effective
measures to tackle high food prices.
The 2011–2012 budget will likely
boost employment in priority
sectors: education, healthcare,
real estate and housing,
infrastructure development,
logistics, telecommunications, and
manufacturing. High spending on
projects in these sectors, including
➔ The United Progressive
Alliance (UPA) government’s
2011–2012 budget—announced
on 28 February—is marked by
the continuation of the political
and economic priorities seen in
the previous two budgets. The
budget, which presumes a 9% GDP
growth rate, emphasizes spending
on infrastructure and social
programs. These sectors account
for nearly 90% of all spending. The
government expects a fiscal deficit
of 4.6% of GDP but this is probably
unrealistically small. Subsidy
allocations, particularly for fuel, will
on R&D projects, will likely trickle
down in the form of increased
skilled and non-skilled job creation.
Moreover, the government plans
to allocate more funding to
the National Skill Development
Fund, which promotes vocational
skills building, a step that should
improve workers’ access to skilled
jobs. Finance Minister Shri Pranab
Mukherjee has pledged 5 billion
rupees ($112 million) to the Fund
during 2011–2012. The government
aims to create a skilled work force
numbering 500 million by 2022.
According to government statistics,
during 2010–2011, the program
provided training to 20,000 people,
75% of whom were able to find
skilled jobs.
■ ■ ■
9 | GloBal MarkeT Brief & laBor risk index Q2 2011
very positive trend
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The Indonesian government is planning tax incentives for large capital projects, in an effort to encourage infrastructure and “big steel” manufacturing investments. For several years, Jakarta has been grappling with the country’s inability to attract large projects and the government’s hope is that clear-cut tax incentive program would offset the other disadvantages of investing in the country (such as the weak bureaucracy and unpredictable regulatory and judicial environment).
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Indonesia 6.7% year-on-year has raised
hopes that price increases are
moderating. For this reason,
policymakers will likely concentrate
on keeping the economy stable
in the light of uncertainty over oil
prices and the possibility of weaker
growth in Japan.
President Susilo Bambang
Yudhoyono has to manage what
is becoming a more contentious
coalition. Over the past few
months, there have been strong
rumors of changes to the cabinet
and a possible falling out between
the president and his main coalition
partner, the Golkar party. While
neither event has materialized,
➔ Domestic consumption,
infrastructure and natural resources
investment, and high commodity
prices will sustain economic growth
through the next few quarters with
GDP growth expected to be 6.4%
in 2011. The main threat remains
the possibility that sustained
inflation in food and fuel could
spill over into the wider economy
and force the central bank to raise
interest rates more aggressively
in the next few months. But the
slower inflation rate in March of
the coalition remains fragile.
One change that parliament may
approve this year is a new land
acquisition law, which would
improve the cumbersome process
for acquiring rights-of-way for
infrastructure projects, primarily
toll roads, and highway upgrades.
However, changes to the labor
law—the primary roadblock holding
up the development of an export-
oriented manufacturing sector—will
be difficult. Labor availability
and productivity remain major
constraints to increased investment
and are likely to persist given the
lack of incentives for workers.
■ ■ ■
10 | GloBal MarkeT Brief & laBor risk index Q2 2011
very positive trend
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One likely casualty of the disaster is the current proposal to amend the Worker Dispatch Law. This law governs temporary employment intermediation, and the proposal would reverse years of deregulation by imposing a range of powerful restrictions on staffing agencies, including a near-ban on intermediating short-term manufacturing jobs. The bill will likely die in the upper house as it would be impossible for the government to enact while coordinating with opposition parties on disaster recovery efforts.
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Japan no major policy fights are expected
until the crisis subsides.
Economic growth hit 4.0% in
2010 but the pace is expected to
slow substantially in the wake of
the disaster to 0.8% in 2011.
An expected strong rebound in
the first quarter has now been
downgraded to an annualized
0.5% jump in output compared
to the disappointing 1.1%
contraction in the fourth quarter
of 2010. Unemployment
remained steady in January at
4.9%, though the total number
of jobs fell slightly.
➔ The Tohoku earthquake and
tsunami have altered the country’s
political course. Prime Minister
Naoto Kan is temporarily in a more
secure position now and will likely
survive the ongoing legislative
session, despite criticism from both
opposition parties and the ruling
Democratic Party of Japan (DPJ).
However, neither group will push
Japan into a paralyzing general
election or a leadership challenge
during a national emergency.
Political skirmishes will persist, but
Japan experienced a slight decline
in prices during the early part of
2011, but increased demand and
supply shortfalls caused by supply
chain disruptions are expected
to push inflation toward 1% later
this year. If recent trends continue,
the yen has reached the end of its
substantial appreciation, suggesting
that global commodity inflation
will now start to affect domestic
prices. These trends, combined
with increased domestic economic
activity focused on disaster recovery
efforts, may finally help Japan
escape persistent deflation.
■ ■ ■
11 | GloBal MarkeT Brief & laBor risk index Q2 2011
very positive trend
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Ever since the ruling National Front (BN) coalition lost its two-thirds parliamentary supermajority in 2008, politics has been in flux. Speculation was that this marked the end of BN dominance, but the opposition’s lack of focus and internal disagreements make it likely that the government will retain control, if not win back the supermajority. This would give Prime Minister Najib Razak the political capital to implement his economic transformation program.
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Malaysia infrastructure initiatives that are
part of the government’s ambitious
economic transformation program
(ETP)—particularly transportation
projects for the greater Kuala
Lumpur area. The government is
also expected to shave subsidy
cuts as part of efforts to help
lower-income groups cope with
rising prices.
The key to Malaysia’s long-term
outlook is its goal of becoming
a high-income country by 2020.
This would involve an ambitious
infrastructure build-up, boosting
the skill level of Malaysian workers,
and rolling back some of the
country’s affirmative action policies.
➔ High commodity prices
and strong domestic demand
are driving economic growth in
Malaysia, with output likely to
expand by 5%–6% in 2011, up
from the 3%–4% estimated in the
previous report. Looming elections
are encouraging the government
to focus on policies that will sustain
or accelerate this growth, and
maintain overall macroeconomic
stability in the face of geopolitical
uncertainties. Some of the
programs being implemented
in the near term are focused on
Any meaningful implementation
of economic reforms under the
ETP will have to wait until after
the general elections, however.
Although elections are scheduled
for 2013, there is a strong likelihood
that the date will be moved up to
late 2011 or early 2012.
One persistent risk is the fiscal
situation. The government’s goal is
to cut the budget deficit from 7.4%
of GDP in 2009 to 2.8% of GDP by
2015, but it has not released any
details about its plans, apart from
its intention to adjust prices for
utilities and other subsidized items
every six months.
■ ■ ■
12 | GloBal MarkeT Brief & laBor risk index Q2 2011
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Changes to New Zealand’s employment laws took effect on 1 April. They include extending the 90-day trial employment provision, giving employees the option to cash in their fourth week of annual leave, doubling penalties for breaching the Holidays or Employment Relations acts, and adjusting holidays and sick leave payments. The adjustments are designed to encourage hiring, reduce compliance costs, and increase worker flexibility.
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New Zealand spending in the budget it is set
to release on 19 May. Cuts to
government services could erode
consumer and business sentiment
in the short term, challenging
job creation.
The short-term impacts of the
Japanese earthquake and Middle
East unrest on global economic
conditions are expected to further
dampen the economic recovery
in New Zealand, and slow growth
may persist into 2011. Despite this
short-term setback, low interest
rates, high commodity prices,
reconstruction efforts, and the 2011
Rugby World Cup are expected
to lead to a modest uptick in
➔ The New Zealand economy
will continue to suffer from
the devastating late-February
earthquake in Christchurch
(following a September 2010
earthquake in the same region).
The government has thus far spent
NZD 1.1 billion ($844 million) on
recovery efforts. This is a primary
reason for the larger-than-expected
NZD 9.2 billion ($7.1 billion)
budget deficit for the eight months
ending in February. In response,
the government will not increase
economic activity in the second half
of 2011 and into 2012.
Unemployment in the fourth quarter
of 2010 rose to 6.8%, up 0.4
percentage points from the previous
quarter. Prior to the December
quake, employment numbers
appeared to be trending upward,
according to the Department of
Labor, but first quarter job figures
will likely reflect the quake’s effect.
Employment will be particularly
affected in the construction, retail,
hospitality, manufacturing, and
business services sectors in the
Christchurch region.
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13 | GloBal MarkeT Brief & laBor risk index Q2 2011
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asia Pacific
overview
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australia
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aBouT sPonsorsOver the next few months, the main economically important political events are the impeachment of the country’s top anti-corruption officer, and the prosecution of corruption in the military. The impeachment of the ombudsman, if successful, could increase the popularity of President Benigno Aquino III, allowing him to pursue tax reforms and take on corruption in the tax collection service. It would also allow him to overcome bureaucratic and political resistance to major infrastructure projects.
Philippines
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was optimistically targeting 7%–8%
growth for 2011, may be forced
to eventually scale back to a more
realistic 5%. Such a number would
be more in line with independent
estimates from multilateral agencies
and private economic forecasters.
In fact, the appreciation of the peso
has anecdotally already affected
families dependent on remittances,
which could have a negative effect
on domestic consumption.
Increased investment by
domestic companies outside of
their traditional sectors could
compensate for negative external
developments. Many firms are
➔ The earthquake in Japan,
higher inflation, and conflict in the
Middle East have raised the risk
that growth in the Philippines will
be slower than earlier expected. In
particular, geopolitical problems
could manifest themselves in
weaker export growth to Japan
(the Philippines’ second-largest
trading partner), lower consumer
spending due to higher prices,
and a decline in remittances from
overseas workers in the Persian Gulf
region. The government, which
expanding their interests into
infrastructure including power
generation, toll roads, airport
operations, mass transit systems,
and mining. Foreign investors
are starting to invest in gold,
copper, and nickel mining. Central
government policies toward
mining have started to stabilize,
limiting political risk principally
to the local government level.
If local government policies
also start to become more
accommodating to mining ventures,
investment could surge due to the
Philippines’ potential.
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14 | GloBal MarkeT Brief & laBor risk index Q2 2011
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asia Pacific
overview
risk index
australia
Bangladesh
china
hong kong
india
indonesia
Japan
Malaysia
new Zealand
Philippines
singapore
south korea
Thailand
Vietnam
aBouT sPonsorsThe government is raising the levy on imported labor over the next two years as part of a broader agenda to encourage firms to invest in more capital equipment and training, and to keep foreign workers at no more than about one-third of the work force. Singapore’s industrial policy is now firmly directed at raising the domestic value-added of its sectors and in making the economy more competitive with high-income producers such as Taiwan.
Singapore
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competitiveness, Singapore’s latest
budget focuses on income support
and programs to upgrade worker
productivity. Fiscal incentives for
firms, which were a vital part of
earlier attempts to limit job losses,
are now less urgent due to the
recent high growth levels. Under
the new budget, funds have instead
been shifted from wage support
schemes to vouchers that can be
used for public transportation,
household maintenance, and
utility bills. The government likely
sees low income groups as more
vulnerable in the coming year from
the threat of high inflation and
possible shifts in the composition
➔ After Singapore’s
economy rebounded strongly
late in 2010, the forecast calls for
a more modest 4%–6% annual
growth rate for 2011. Sustainable
growth, rising inflation, and
the appreciating currency are
turning the government’s focus
from supporting employment to
cushioning price increases and
improving productivity.
In an effort to help lower income
workers cope with rising inflation
and to improve the country’s
of external demand due to the
strengthening of the Singaporean
dollar. Housing grants and rebates
are also part of the plan.
Singapore has tightened monetary
policy more aggressively than many
other countries have. But cost
increases are also being driven by
external factors, which help drive
income support polices, rather than
the more drastic, but ultimately less
effective, monetary policy options.
In an attempt to cool off the
property sector, the Singaporean
government in January mandated
lower loan to value ratios for real
estate loans.
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15 | GloBal MarkeT Brief & laBor risk index Q2 2011
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asia Pacific
overview
risk index
australia
Bangladesh
china
hong kong
india
indonesia
Japan
Malaysia
new Zealand
Philippines
singapore
south korea
Thailand
Vietnam
aBouT sPonsorsPresident Lee will be something of a lame duck for the rest of his term. In March, Lee broke a campaign pledge to build a new international airport near Busan when a commission raised questions about its feasibility. This compounds Lee’s difficulties, after he opposed an effort to move nine ministries and four government agencies from Seoul to Sejong City. Lee’s proposed alternative—a business complex—was killed when his rivals joined forces.
South Korea
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to 3.0% in mid-March, in line with
expected gradual tightening.
Alongside inflation, another
principal concern remains currency
volatility. The central bank has often
intervened to bolster the won, but
its tolerance for volatility is rising
given strong export data and robust
corporate earnings.
Public support for South Korea’s
labor movement has waned
considerably over the past year, but
labor relations should be tougher
in 2011. In February, the national
metal workers union, which includes
auto company unions, announced
a plan to strike in July unless its
➔ South Korea’s economy,
which contracted in the second half
of 2008, grew by 6.2% in 2010, its
fastest rate since 2002. But inflation
remains a significant concern. In
March, consumer prices rose 4.7%
year on year, the fastest pace in 29
months. And while President Lee
Myung-bak hopes to keep inflation
below 3% for the year, the central
bank has projected that inflation will
accelerate to 3.9% in 2011, up from
2.9% in 2010. The bank hiked the
key interest rate by 25 basis points
demands are met. They include a
uniform increase in monthly base
pay; a guarantee of labor talks; and
the conversion of some temporary
worker positions to permanent
status with existing benefits.
Another moderate umbrella
organization, the Federation of
the Korean Trade Unions (FKTU),
has declared that it is ending its
cooperation with the ruling Grand
National Party (GNP) that dates
from 2007. The FKTU is seeking
to repeal the “time-off” limits
on company-paid union officials
and single-channel negotiation in
multiple-union companies.
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16 | GloBal MarkeT Brief & laBor risk index Q2 2011
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In late March, the government promised to raise wages by 25% over the next two years. This announcement is likely designed to motivate workers to vote for the ruling Democrat Party in the elections. Any such increase will be resisted by the Bangkok business community, which is one of the key constituencies of the ruling Democrat Party. Even without government action, wages for skilled workers are still likely to rise due to the tight labor market.
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asia Pacific
overview
risk index
australia
Bangladesh
china
hong kong
india
indonesia
Japan
Malaysia
new Zealand
Philippines
singapore
south korea
Thailand
Vietnam
aBouT sPonsors
of inflation and to build support
ahead of the election campaign.
Parliament is also deliberating a
supplementary budget worth 100
billion baht ($3.3 billion). Opposition
parties are calling it an election slush
fund, and asserted that many of the
budget’s allocations were aimed at
repaying junior coalition partners for
their support.
But while the elections may create
some near-term uncertainty, the
ruling Democrats and their coalition
partners are expected to hold
on to their current majority and
win a new mandate. This would
eliminate popular opposition
➔ Perceptions of political
instability will rise in the near term,
as general elections are due in
late June or early July. But the
political uncertainty is unlikely to
significantly dent the outlook for
the economy, which is growing due
to a strong recovery in exports and
perceptions that political stability
may be returning to the country.
In addition, the government is
focused on supplementing incomes
for the poor to counter the effects
claims that the government is
illegitimate and would signal that
former prime minister Thaksin
Shinawatra’s popularity and his
ability to influence domestic politics
are waning. Improving stability
would, in turn, reduce investor
apprehension about violent and
possibly even destabilizing unrest.
The main risk is that one of the
smaller parties in the government
coalition defects to the opposition,
but this is unlikely to happen
given that many of these parties
would likely insist that Thaksin
remove himself from an opposition
leadership role.
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17 | GloBal MarkeT Brief & laBor risk index Q2 2011
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Government firms dominate key sectors of the Vietnamese economy, such as power, telecommunications, heavy industry, and natural resources. These firms not only secure significant budget support, they also prevent liberalization of these sectors. Their strong political connections make reform and privatization difficult. The bankruptcy in mid-2010 of the national shipbuilder Vinashin exposed this problem. Continued high levels of state-owned enterprise (SOE) involvement in the economy lead to longer-term problems related to the sustainability of public sector debt.
Vietnam
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asia Pacific
overview
risk index
australia
Bangladesh
china
hong kong
india
indonesia
Japan
Malaysia
new Zealand
Philippines
singapore
south korea
Thailand
Vietnam
aBouT sPonsors
curtailing lending to the overheated
property sector, which will likely
lead to slower economic growth.
But this policy will have to be
maintained through at least the
third quarter, which will dampen
growth expectations well into next
year. Economic growth already
slowed to 5.4% year-on-year in the
first quarter, almost two percentage
points lower than the 7.3% year-
on-year growth in the fourth
quarter of 2010.
Policymaking coherence, which
had been absent during the fourth
quarter of last year, is also likely
➔ After several months
of apparent indecision in late
2010, the government is now
firmly focused on dealing with
inflation. Senior officials have even
emphasized the need to move on
from the growth-focused polices
that have caused policymakers to
ignore or disregard clear signals
about overheating in several
sectors of the economy. To achieve
this, the government will likely
focus on raising interest rates and
to improve as the transition to the
next government is expected to be
completed by May. The National
Assembly will meet to reelect Prime
Minister Nguyen Tan Dung, who
has been the most visible advocate
of reform in the senior rungs of the
party. But Dung has to contend with
the presence of two conservatives,
Communist Party General Secretary
Nguyen Phu Truong and soon-
to-be President Truong Tan Sang.
Both represent the conservative
factions of the party that emphasize
stability and security, which would
manifest itself in slower reforms
and liberalization.
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18 | GloBal MarkeT Brief & laBor risk index Q2 2011
About this Report
The Global Market Brief & Labor Risk Index is jointly developed by KellyOCG, the Outsourcing and Consulting Group of human resources provider,
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