kellyocg asia pacific global market brief and labor risk index - q2, 2011

asia Pacific

Think ouTside.

Global Market Brief & Labor Risk Index

2011 2Tokyo Bay, Tokyo, Japan © 2009 Robert Churchill

www.kellyocg.com

www.eurasiagroup.net

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.

■ ■ ■


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


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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Political Social Security

MACRO RISKS LABOR RISKS

Economic Foreign Investment

Flexibility Availability Quality Contentment

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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

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.

■ ■ ■


very positive trend

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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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asia Pacific

overview

risk index

australia

Bangladesh

china

hong kong

india

indonesia

Japan

Malaysia

new Zealand

Philippines

singapore

south korea

Thailand

Vietnam

aBouT sPonsors

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.

■ ■ ■


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

hiGh risk

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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asia Pacific

overview

risk index

australia

Bangladesh

china

hong kong

india

indonesia

Japan

Malaysia

new Zealand

Philippines

singapore

south korea

Thailand

Vietnam

aBouT sPonsors

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.

■ ■ ■


very positive trend

positive trend

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very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

hiGh risk

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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asia Pacific

overview

risk index

australia

Bangladesh

china

hong kong

india

indonesia

Japan

Malaysia

new Zealand

Philippines

singapore

south korea

Thailand

Vietnam

aBouT sPonsors

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.

■ ■ ■


very positive trend

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current quarter

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current quarter

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low risk

hiGh risk

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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asia Pacific

overview

risk index

australia

Bangladesh

china

hong kong

india

indonesia

Japan

Malaysia

new Zealand

Philippines

singapore

south korea

Thailand

Vietnam

aBouT sPonsors

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.

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very positive trend

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current quarter

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low risk

hiGh risk

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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asia Pacific

overview

risk index

australia

Bangladesh

china

hong kong

india

indonesia

Japan

Malaysia

new Zealand

Philippines

singapore

south korea

Thailand

Vietnam

aBouT sPonsors

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.

■ ■ ■


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

hiGh risk

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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asia Pacific

overview

risk index

australia

Bangladesh

china

hong kong

india

indonesia

Japan

Malaysia

new Zealand

Philippines

singapore

south korea

Thailand

Vietnam

aBouT sPonsors

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.

■ ■ ■


very positive trend

positive trend

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current quarter

prior quarter

current quarter

prior quarter

low risk

hiGh risk

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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asia Pacific

overview

risk index

australia

Bangladesh

china

hong kong

india

indonesia

Japan

Malaysia

new Zealand

Philippines

singapore

south korea

Thailand

Vietnam

aBouT sPonsors

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.

■ ■ ■


very positive trend

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current quarter

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low risk

hiGh risk

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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asia Pacific

overview

risk index

australia

Bangladesh

china

hong kong

india

indonesia

Japan

Malaysia

new Zealand

Philippines

singapore

south korea

Thailand

Vietnam

aBouT sPonsors

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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very positive trend

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current quarter

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low risk

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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 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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very positive trend

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current quarter

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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.

■ ■ ■


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

hiGh risk

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

0

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6

7

8

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NXÇÅ

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.

■ ■ ■


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

hiGh risk

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.

Thailand

0

1

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3

4

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NXÇÅ

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.

■ ■ ■


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

hiGh risk

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

0

1

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3

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5

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NXÇÅ

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.

■ ■ ■


About this Report

The Global Market Brief & Labor Risk Index is jointly developed by KellyOCG, the Outsourcing and Consulting Group of human resources provider,

Kelly Services and Eurasia Group, the global political risk consultancy. The report, a proprietary blend leveraging Kelly’s labor market knowledge with

Eurasia Group’s expertise in political and socio-economic risk analysis, delivers a groundbreaking resource for companies as they assess market

investments and global labor strategies.

Published on a quarterly basis, the Global Market Brief & Labor Risk Index is segmented by four geographies: the Americas, Asia-Pacific, Europe and Eurasia,

and the Middle East and Africa, with detailed insights for 55 of the world’s most important economies.

About Eurasia Group

Eurasia Group is the world’s leading global political risk research and consulting firm. Since 1998, it has helped clients make informed business decisions in

countries where understanding the political landscape is critical. The firm’s research analysts are trained social scientists with post-graduate degrees, extensive

professional experience, and a diverse range of language capabilities. Headquartered in New York, it also has offices in Washington and London, as well as a

network of experts around the world. For more information, please visit www.eurasiagroup.net.

About KellyOCG

KellyOCG is the Outsourcing and Consulting Group of Fortune 500 human resources solutions provider, Kelly Services, Inc. KellyOCG is a global leader in

innovative talent management solutions in the areas of Recruitment Process Outsourcing (RPO), Business Process Outsourcing (BPO), Contingent Workforce

Outsourcing (CWO), including Independent Contractor Solutions, Human Resources Consulting, Career Transition and Organizational Effectiveness, and

Executive Search. Visit www.kellyocg.com.

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This report is available on an annual subscription basis. To access a complimentary report abstract, and for full subscription details, visit www.kellyocg.com/marketbrief

More Information

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kellyocg asia pacific global market brief and labor risk index - q2, 2011

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