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Think ouTside.
Global Market Brief & Labor Risk Index
2010 2meThodology sample reporT only
Global Market Brief & Labor Risk Index
2010
This is meThodology sample reporT only.
To subscribe to the global market Brief & labor risk index, visit kellyocg.com/marketbrief
2
conTenTs
This material was produced by Eurasia Group in collaboration with KellyOCG. This is intended as general background research and is not intended to constitute advice on any particular commercial investment, trade matter, or issue, and should not be relied upon for such purposes. Eurasia Group is a private research and consulting firm. © 2010 KellyOCG and Eurasia Group.
3 preface: rolf kleiner, senior Vice-president, kelly ocg & ian Bremmer, president, eurasia group
4 methodology
72 about sponsors
The Americas6 overview
7 risk index
8 argentina
9 Brazil
10 canada
11 chile
12 colombia
13 mexico
14 panama
15 united states
Asia Pacific17 overview
18 risk index
19 australia
20 china
21 hong kong
22 india
23 indonesia
24 Japan
25 malaysia
26 new Zealand
27 pakistan
28 philippines
29 singapore
30 south korea
31 Thailand
32 Vietnam
Europe and Eurasia34 overview
35 risk index
36 Baltics
37 Belgium
38 Bulgaria
39 czech republic
40 denmark
41 France
42 germany
43 hungary
44 ireland
45 italy
46 luxembourg
47 netherlands
48 norway
49 poland
50 portugal
51 romania
52 russia
53 spain
54 sweden
55 switzerland
56 Turkey
57 ukraine
58 united kingdom
Middle East and Africa60 overview
61 risk index
62 algeria
63 egypt
64 israel
65 kenya
66 kuwait
67 morocco
68 Qatar
69 saudi arabia
70 south africa
71 united arab emirates
cover: ancient bridge, Zagoria, greece © 2007 Kai Koehler
4 | gloBal markeT BrieF & laBor risk index Q2 2010
Preface
rolf kleiner,
senior Vice-president,
kellyocg
ian Bremmer,
president,
eurasia group
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
middle easT and aFrica
aBouT sponsors
such as Australia. Most developed
economies continue to face high
unemployment, however, and are
managing only a modest recovery,
as in the US, or suffering continued
contraction, as in Ireland.
Governments in some emerging
markets have already begun to
withdraw stimulus measures,
relying on the private sector and
external demand to sustain growth.
It remains to be seen whether this
transition comes soon enough
to keep expansionary policies
from fueling inflation. If inflation
does increase, workers will likely
demand higher wages to keep
pace, potentially sparking social
unrest. Policymakers will have to
balance that risk as well the need
for long-standing structural reforms,
including to the labor market.
Some governments face additional
challenges, including political
unrest in Thailand and pulling off
a successful soccer World Cup in
South Africa.
Governments in the developed
world also face serious challenges.
Efforts to keep debt and deficits
in check have become serious
concerns, particularly in the
eurozone. The EU and the IMF
provided a loan package to Greece
to stave off sovereign default, and
recently announced a $930 billion
emergency loan package for other
EU governments facing fiscal issues,
such as Spain, Portugal, and Italy.
Stubbornly high unemployment
will likely be a bigger concern in
many other developed markets,
potentially affecting elections in
Japan this summer and the US in
November.
■ ■ ■
➔ As the world rebounds
from the financial crisis, emerging
markets are outpacing the
developed world both in the speed
of their recovery and job growth.
The Asia-Pacific region leads
the way, though Latin American
economies are also recovering
strongly. Thanks to high commodity
prices, growth is also robust in
Russia and the Middle East, as
well as a few developed nations
5 | gloBal markeT BrieF & laBor risk index Q2 2010
Methodology
In addition to assessing the current risk environment, this report also takes into consideration the trajectory of risk trends.
Arrows alongside risk scores explain where risks are likely to show a very positive trend (X X), positive trend (X),
negative trend (Y), very negative trend (Y Y), or remain unchanged (blank) over the 3-month period of the report.
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
middle easT and aFrica
aBouT sponsors
➔ The Global Market Brief &
Labor Risk Index is based on detailed
analysis of hard metrics of 30 unique
labor market, socio-economic, and
political factors, layered with localized
expertise of in-country consultants.
The analysis aggregates the
individual factors into 9 core risk
variables: 5 macro variables and 4
labor variables that are each assigned
a score on a 10-point scale projecting
the degree of risk over the next
90 days. Each risk variable is also
assessed as to whether it is trending
negative or positive.
macroeconomic environment
This indicator captures the current
health of the macroeconomic
environment through an assessment
of the stability of monetary and
fiscal policy, the stability of trade
and capital flows, and the quality of
economic performance, controlling
for historic macroeconomic stability
and the quality of official statistics.
policy environment for
foreign investment
This indicator measures how
hospitable the policy and regulatory
environment is for foreign investment
by assessing the extent to which
there are barriers to economic
activity and the degree to which
the economy is a destination for
foreign investment.
laBor risk
labor market flexibility
This indicator captures labor market
flexibility, assessing the regulatory
environment that employers face
in managing human resources,
the ability of labor to influence
policymaking, and the near-term
potential for changes in the labor
regulatory environment.
labor availability
The labor availability indicator
incorporates migration, urban
population, the size of the labor
force, the extent to which women
participate in the labor force,
and unemployment.
labor quality
The quality of labor is measured
by the education and skill level of a
labor force, the general health of the
population, and labor productivity.
labor contentment
This indicator assesses the likelihood
of labor discontent by combining the
existence or potential of near-term
labor unrest with the misery index,
which incorporates unemployment
and inflation rates.
■ ■ ■
For all variables, scores range
from 1 to 10, where 1 is ‘high risk’
and 10 is ‘low risk’.
macro-poliTical/
counTry risk
political environment
This indicator estimates the
predictability of the political
environment by measuring
regime and government stability,
government and opposition
effectiveness, and how well the
government functions.
social environment
This indicator captures the presence
and intensity of social conflict
among ethnic and other minorities,
controlling for the mitigating effects
of the socioeconomic wellbeing of
the population and the equality of
wealth distribution.
security environment
This indicator captures the issues
of personal security by incorporating
both the risk of armed conflict
(either domestic or foreign) and
criminal activity.
6 | gloBal markeT BrieF & laBor risk index Q2 2010
Overview: The Americas
conTenTs
preFace
meThodology
The americas
overview
risk index
argentina
Brazil
canada
chile
colombia
mexico
panama
united states
asia paciFic
europe and eurasia
middle easT and aFrica
aBouT sponsors
due to a collapse of labor-intensive
exports to Venezuela. Meanwhile,
the economic recovery has been
accompanied by renewed calls
for higher pay in countries such
as Argentina and Brazil, where
labor unions are demanding wage
increases in excess of stubbornly
high inflation.
Labor reform has also crept onto
the legislative agenda of several
countries, although the chances
of passage look slim. In Brazil,
legislators hoping to strengthen
their electoral prospects in
October’s general elections
have joined forces with unions
to shorten the work week and
increase overtime pay, but will
struggle to find room in a crowded
➔ Economies throughout
the Americas are showing signs
of a sustained recovery thanks to
continued fiscal and monetary
stimulus and to rising commodity
prices. Brazil is leading the way
with strong job creation and a
GDP that is officially projected to
grow by 6% this year. Throughout
the rest of the hemisphere, GDP
growth rates are expected to range
between 3% and 5%, according to
government estimates, although
Colombia is likely to lag behind
legislative agenda before Congress
shuts down in July. In Mexico,
the ruling party’s efforts to push
through an ambitious labor reform
package that would increase the
transparency of labor unions and
make employer-worker contracts
more flexible are also likely to be
heavily diluted by an uncooperative
opposition that is positioning itself
for state elections later this year.
Finally, in the US, the Democratic
leadership may try to bring the
Employee Free Choice Act (which
makes it easier for workers to
unionize) to a vote after long delays
in order to win labor support ahead
of the midterm elections. But the
chances of the measure passing
remain slim.
■ ■ ■
7 | gloBal markeT BrieF & laBor risk index Q2 2010
conTenTs
preFace
meThodology
The americas
overview
risk index
argentina
Brazil
canada
chile
colombia
mexico
panama
united states
asia paciFic
europe and eurasia
middle easT and aFrica
aBouT sponsors
macro risks laBor risks
political social security economicForeign
investmentFlexibility availability Quality contentment
Argentina 5 Y 7 8 4 5 Y 5 4 7 4
Brazil 7 6 6 7 5 3 Y 6 5 6
Canada 8 X 7 9 7 X 8 7 7 8 6 X
Chile 7 6 9 5 X 7 7 5 8 6
Colombia 7 Y 5 3 6 6 7 6 6 5
Mexico 6 6 5 Y 6 X 7 4 X 4 5 7
Panama 8 6 7 Y 6 7 4 3 5 7 Y
United States 8 8 Y 9 7 X 8 8 8 9 7 X
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’.
The americas – risk index summary TaBle – Q2 2010
8 | gloBal markeT BrieF & laBor risk index Q2 2010
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
A pending constitutional amendment in the lower house would reduce the work week from 44 to 42 hours and increase overtime pay from 50% to 75% above regular hourly compensation. The proposal is being driven by the desire of some legislators to enact a popular reform prior to the October elections. While the reform may be approved in the lower house, it is unlikely to become law as there is little time to gain approval in the Senate before congress shuts down in July.
Brazil
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10
Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality Contentment
NXÇÅ
conTenTs
preFace
meThodology
The americas
overview
risk index
argentina
Brazil
canada
chile
colombia
mexico
panama
united states
asia paciFic
europe and eurasia
middle easT and aFrica
aBouT sponsors
is 29% higher than the rate of job
creation registered in any other
previous month of March. Given
these strong numbers, the Ministry
of Labor is increasingly confident
that unemployment will drop to 7%
by the end of 2010.
Such a promising growth outlook
has led to an uptick in inflationary
pressures and growing concern,
some of it unfounded, that the
Central Bank of Brazil may face
political pressure not to raise interest
rates. Projections for year-end
inflation for 2010 have grown from
4.5% to 5.3% in the central bank’s
weekly survey since the end of 2009.
The central bank opted against
raising interest rates in March, and
➔ The country’s growth
outlook improved over the first
three months of 2010, further
strengthening workers’ leverage
to demand higher pay. Brazil’s
faster-than-expected economic
rebound also caused the country’s
jobless rate to drop. According to
a central bank survey, the country’s
expected GDP growth rate rose
from 5.3% in January to 6.06 % in
May. Meanwhile, unemployment
fell from 9% in March 2009 to 7.4%
in February 2010, while 226,415
new jobs were created in the formal
labor market in March alone—which
many investors inferred that the
reason stemmed from the desire
of Henrique Meirelles, the central
bank governor, to run for elected
office in October. Meirelles has
since stated he won’t run, but his
loss of credibility probably means
the central bank will have to more
aggressively hike interest rates to
assure markets that the government
is committed to keeping inflation
low. The central bank’s decision to
raise interest rates by 75 basis points
on 28 April is a clear indicator that
that the government’s commitment
to keep inflation low has not been
undermined.
■ ■ ■
9 | gloBal markeT BrieF & laBor risk index Q2 2010
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
While rising oil prices have stabilized the outlook for Canada’s strategic oil sands sector, not all signals are positive on the energy front. Natural gas prices have collapsed, putting significant pressure on Alberta’s economy in particular. Last year was the first year in which royalties from bitumen (oil sands) production exceeded natural gas revenues for the provincial government. Alberta gas prices are trading about $1/mmbtu below benchmark US prices, due to their distance from markets. The Canadian gas export industry also faces significant competitive pressure in defending its markets from emerging shale gas production in the US.
Canada
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Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality Contentment
NXÇÅ
conTenTs
preFace
meThodology
The americas
overview
risk index
argentina
Brazil
canada
chile
colombia
mexico
panama
united states
asia paciFic
europe and eurasia
middle easT and aFrica
aBouT sponsors
This will be particularly painful for
manufacturing-intensive central
Canada, particularly Ontario.
Ontario industry, dominated by the
auto sector, has already been under
significant restructuring pressures.
Ontario also faces uncertainty in
its consumer sector, along with
British Columbia, as the provincial
government harmonizes the
provincial sales tax with the federal
goods and services tax. This means
that a wider range of goods and
services will now be subjected to
a provincial sales tax in addition to
the federal tax.
Adding uncertainty is a decision
by Ottawa to tighten mortgage
➔ The Canadian economy is
at a significant turning point. Like
its neighbor to the south, Canada
will be adjusting to a withdrawal
of stimulus funds and a likely
tightening of interest rates by July
2010. The Bank of Canada signaled
at its 20 April meeting that such a
tightening was expected, sending
the Canadian dollar once again
above par with the US dollar. With
the loonie expected to hover at
close to parity for some time,
Canadian export industries will
continue suffer throughout 2010.
rules and end incentives for home
renovation. Collectively, higher
interest rates, a stronger dollar, tax
hikes in two key provinces, and
slowing housing and construction
markets would all seem to suggest
an economic slowdown is likely.
Yet the Canadian economy is also
being bolstered by higher oil prices,
which act as an economic growth
engine in western Canada. The
financial sector is also healthy. A
recovery in the oil sands sector and
the ongoing strength of financials
should help offset job losses
elsewhere. Unemployment rates are
thus unlikely to rise, but probably
won’t improve much either.
■ ■ ■
10 | gloBal markeT BrieF & laBor risk index Q2 2010
Overview: Asia Pacific
conTenTs
preFace
meThodology
The americas
asia paciFic
overview
risk index
australia
china
hong kong
india
indonesia
Japan
malaysia
new Zealand
pakistan
philippines
singapore
south korea
Thailand
Vietnam
europe and eurasia
middle easT and aFrica
aBouT sponsors
exports has also led to sharper than
expected growth in export-oriented
countries such as Singapore and
Malaysia. With growth secure,
the governments of these states
have turned their policy focus
from stimulus toward how best
to position themselves for an
improved longer-term expansion.
In other Asia-Pacific countries,
meanwhile, smart government
policy and macroeconomic
management will be critical to
securing a return to sustainable
growth in 2010, while minimizing
risks of other macroeconomic
problems. Governments in Australia
and Vietnam, for instance, will
need to continue balancing pro-
growth policies with those aimed
at containing inflation. In Japan
➔ The Asia-Pacific region, led
by emerging giants China, India,
and Indonesia, will power much
of the nascent global economic
recovery in 2010. A combination
of recovering global demand for
exports, government stimulus
policies, and buoyant domestic
consumption has helped these
countries grow faster than expected
in the first quarter of 2010. The
strong recovery of global demand
for the region’s manufacturing
and New Zealand, authorities must
monitor the impact of stimulus
on public finances, even as they
maintain expansionary policies.
While pockets of uncertainty
will remain in some Asia-Pacific
countries, these are more likely to
be a drag on growth than to derail
it during 2010. Domestic political
and security problems in Pakistan
and Thailand will complicate
those countries’ efforts to secure
an economic recovery, but the
impact of these problems will be
contained. South Korea’s prospects
are brighter, but risks of worsening
tension with North Korea could
dampen investor sentiment toward
the region.
■ ■ ■
11 | gloBal markeT BrieF & laBor risk index Q2 2010
conTenTs
preFace
meThodology
The americas
asia paciFic
overview
risk index
australia
china
hong kong
india
indonesia
Japan
malaysia
new Zealand
pakistan
philippines
singapore
south korea
Thailand
Vietnam
europe and eurasia
middle easT and aFrica
aBouT sponsors
macro risks laBor risks
political social security economicForeign
investmentFlexibility availability Quality contentment
Australia 8 Y 9 9 8 8 8 7 8 8
China 7 Y 4 Y 8 6 6 5 X 6 6 6
Hong Kong 7 Y 7 10 7 X 9 8 6 Y 8 7
India 7 4 6 Y 4 X 4 5 4 2 X 6
Indonesia 6 X 6 7 6 X 5 XX 3 5 4 5
Japan 6 Y 9 10 7 X 8 6 7 9 9
Malaysia 5 3 Y 8 6 X 5 6 4 6 Y 7
New Zealand 7 9 10 6 X 8 8 7 8 8
Pakistan 4 3 Y 3 3 Y 6 4 3 2 4
Philippines 5 X 5 6 5 4 X 5 X 5 5 8
Singapore 8 7 8 7 X 10 7 6 8 7
South Korea 7 9 7 Y 7 X 8 4 6 8 7
Thailand 4 Y 5 Y 6 Y 6 7 7 5 5 7
Vietnam 7 6 X 9 4 X 5 4 5 4 7 Y
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 2010
12 | gloBal markeT BrieF & laBor risk index Q2 2010
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
A broad policy document was issued in April that formalizes the shift of FDI from the traditional manufacturing sectors to higher technology and value-added services and industries. The document also promotes FDI to central and western regions. Beijing clearly wants to harness foreign help to restructure the economy. Foreign investors should think critically about the opportunities created by this process as China’s leaders shift focus away from the coast to the rest of the country.
China
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Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality Contentment
NXÇÅ
conTenTs
preFace
meThodology
The americas
asia paciFic
overview
risk index
australia
china
hong kong
india
indonesia
Japan
malaysia
new Zealand
pakistan
philippines
singapore
south korea
Thailand
Vietnam
europe and eurasia
middle easT and aFrica
aBouT sponsors
part reflects the fact that China was
coming from a low base in the first
quarter of 2009. Inflation slowed
a bit from February to March,
falling from 2.7% to 2.4%, with
the quarterly figure still below the
government’s 3% target for 2010.
But Beijing is worried that property
prices in 70 cities climbed 11.7% in
March. The Chinese government
has already announced measures
to cool the property sector, some of
which include prohibiting lending
for second or third homes. But
officials must be careful to avoid
triggering a hard landing.
Rising wages present another
inflationary concern this year.
Minimum wages have been raised
➔ The growth outlook
for China remains relatively
positive, but there are significant
challenges ahead, including an
overheating property sector,
inflationary pressures, and economic
restructuring. These challenges
underscore Premier Wen Jiabao’s
assessment that China is moving
from its most difficult year in 2009 to
its most complicated one in 2010.
This year China posted first-quarter
growth of 11.9% and its consumer
price index grew by 2.2%. The
higher than expected growth in
in several coastal provinces by
13%–20% to attract more migrant
labor.
Given these pressures, appreciation
of the yuan is looking more likely.
A revaluation would make imports
cheaper and lower costs for
industries that rely on imported
components or equipment. In
fact, China’s central bank has been
making the inflation argument as
a justification to change currency
policy. If it comes, however, any
appreciation is sure to be gradual
to minimize damage to the export
sector and to maintain jobs.
■ ■ ■
13 | gloBal markeT BrieF & laBor risk index Q2 2010
very positive trend
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negative trend
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current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
On 6 April, a bill was submitted to the legislature that would require temporary staffing agencies (as of 2013) to employ on a full-time basis the temporary workers they dispatch. Though some business concessions have been eliminated to appease the party’s coalition partners, enough DPJ support is likely to push the bill through by the end of the legislative session in June. An exemption for 29 high-skill occupations will provide some relief for staffing firms.
Japan
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Economic Foreign Investment
Flexibility Availability Quality Contentment
NXÇÅ
conTenTs
preFace
meThodology
The americas
asia paciFic
overview
risk index
australia
china
hong kong
india
indonesia
Japan
malaysia
new Zealand
pakistan
philippines
singapore
south korea
Thailand
Vietnam
europe and eurasia
middle easT and aFrica
aBouT sponsors
more manageable coalition, offering
some hope that Tokyo will soon be
able to start making progress toward
rebalancing the country’s economy
by strengthening domestic demand.
After a severe contraction in 2009,
some projections now put 2010
growth above 2%. However, fiscal
deficit projections are near 10% of
GDP. The downturn has pushed
Japan back into deflation, further
harming efforts to revive economic
activity. One bright spot is that
unemployment has declined from
5.1% at the end of 2009 to 4.9% as
of April. The DPJ-led government
focused its early efforts on crafting a
fiscal stimulus package and
finalizing its first budget by the
close of Japan’s fiscal year on
➔ Japan’s macroeconomic
outlook is improving, though this
is more a function of external
demand, especially from Asia, than
it is the result of any increase in
domestic demand. Japan’s political
outlook has recently deteriorated
as maneuvering ahead of a July
election for the upper house of the
legislature has produced splits in
the largest opposition party and
exacerbated tension within the ruling
coalition led by the Democratic
Party of Japan (DPJ). The election
result will likely sort out the DPJ’s
leadership problems and produce a
31 March. The government has kept
up rhetorical pressure on the Bank
of Japan to maintain and augment
expansionary monetary policy to
combat deflation. Having survived
campaign finance scandals, both
Prime Minister Yukio Hatoyama
and Ichiro Ozawa, the DJP’s key
powerbroker, face upcoming
leadership challenges, but an
eventual shake-up, before or after
the July election, is unlikely to derail
the party’s agenda. Indeed, a more
policy minded successor is likely to
emerge, who will push ahead with a
variety of social-spending initiatives
including child care, education,
and income support, all boosting
private demand.
■ ■ ■
14 | gloBal markeT BrieF & laBor risk index Q2 2010
Overview:Europe and Eurasia
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
overview
risk index
Baltics
Belgium
Bulgaria
czech republic
denmark
France
germany
hungary
ireland
italy
luxembourg
netherlands
norway
poland
portugal
romania
russia
spain
sweden
switzerland
Turkey
ukraine
united kingdom
middle easT and aFrica
aBouT sponsors
Commission to impose austerity
programs, although the $930
billion loan guarantee program
from the EU and IMF will provide
financing assistance. However,
businesses and individuals are
unlikely to get much relief from
their governments—in the form
of tax cuts or expanded social or
unemployment benefits—anytime
soon. Fiscal adjustment will
continue within the eurozone, which
will threaten growth and possibly
spark further popular unrest.
Russia, meanwhile, showed signs
of a turnaround in 2010, with
its economy growing in the first
quarter and its budget deficit
and unemployment declining.
Many of these improvements are
due to rising commodity prices,
➔ European policymakers
will continue to be constrained
by the need to strengthen their
countries’ fragile fiscal positions. As
eurozone officials were coordinating
a response to the Greek fiscal
crisis in late April, ratings agencies
downgraded the sovereign debt
ratings of Spain and Portugal due to
their high deficits and debt levels.
Those European countries that have
deficits above the EU-mandated
maximum of 3% of GDP will face
continued and perhaps increased
pressure from the European
however, so it remains unclear how
sustainable they will be. That said,
the government moved to increase
pensions by more than 6% as of
April 2010, and this fall Moscow
may also introduce measures to
cushion the labor market ahead of
elections.
Further signs of recovery are also
emerging in Turkey. The country’s
economy grew in the fourth quarter
of 2009 and unemployment fell at
the start of 2010. The employment
outlook, however, remains uncertain
because the labor market remains
rigid. A growing budget deficit will
also constrain reforms, such as a
cut in payroll the tax, that would
decrease the cost of hiring workers.
■ ■ ■
15 | gloBal markeT BrieF & laBor risk index Q2 2010
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
overview
risk index
Baltics
Belgium
Bulgaria
czech republic
denmark
France
germany
hungary
ireland
italy
luxembourg
netherlands
norway
poland
portugal
romania
russia
spain
sweden
switzerland
Turkey
ukraine
united kingdom
middle easT and aFrica
aBouT sponsors
macro risks laBor risks
political social security economicForeign
investmentFlexibility availability Quality contentment
Baltics 6 Y 6 8 4 Y 7 3 6 6 2
Belgium 5 Y 7 8 6 9 5 5 8 5
Bulgaria 7 5 7 4 8 6 4 6 5 YCzech Republic 5 Y 8 8 6 6 6 5 8 5
Denmark 7 9 7 7 X 9 6 5 9 6
France 7 X 8 7 6 8 4 6 8 4
Germany 7 Y 9 8 7 8 3 6 9 4
Hungary 6 XX 8 9 5 X 8 6 6 7 4
Ireland 6 9 8 5 9 6 6 8 4 YItaly 5 Y 7 7 6 6 4 5 7 5
Luxembourg 7 9 8 6 X 8 4 5 9 7
Netherlands 5 8 8 7 8 Y 3 5 8 7
Norway 7 9 8 7 X 9 4 5 9 8
Poland 6 X 7 9 6 7 6 6 7 5
Portugal 7 8 7 4 8 2 6 7 3 YRomania 7 5 7 4 X 8 4 4 5 4
Russia 6 Y 6 5 5 X 6 6 7 5 4
Spain 6 Y 7 7 4 7 2 8 8 3
Sweden 7 Y 9 8 6 8 4 6 9 6
Switzerland 7 8 8 7 Y 8 5 5 9 8
Turkey 7 Y 6 7 6 X 7 5 5 X 5 4
Ukraine 5 X 5 8 3 X 6 6 4 5 5
United Kingdom 6 8 6 6 9 Y 6 6 8 5
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’.
europe and eurasia – risk index summary TaBle – Q2 2010
16 | gloBal markeT BrieF & laBor risk index Q2 2010
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
A rising budget deficit and government debt that is projected to reach 93.2% of GDP by 2013 are pressuring Paris to cut spending. While the government has decreased the number of public-sector employees, this may not cut enough costs to meet EU rules. A recent failure to implement a carbon tax has further slowed measures to raise government revenue. Since Sarkozy has signaled that taxes will not be increased, more austere measures may be introduced.
France
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8
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Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality Contentment
NXÇÅ
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
overview
risk index
Baltics
Belgium
Bulgaria
czech republic
denmark
France
germany
hungary
ireland
italy
luxembourg
netherlands
norway
poland
portugal
romania
russia
spain
sweden
switzerland
Turkey
ukraine
united kingdom
middle easT and aFrica
aBouT sponsors
the dollar is helping manufacturing
firms, declining export strength
casts a pall over future growth
prospects.
Unemployment and its social and
financial costs remain pressing
concerns. The 2009 annual
unemployment rate was 9.5%,
and the likelihood of continued
social unrest remains high, as
unemployment is expected to
mildly decline starting only in 2011.
Like other EU countries, France
aims to reduce its budget deficit,
4.9% of GDP in 2009, to 3% by
2013. The government’s reform
program experienced a strong
setback because of losses suffered
➔ The French economy
contracted 2.1% in 2009, but is
expected to grow about 1.5% in
2010. One reason for France’s
economic contraction is that the
country’s exports continue to face
strong competition from Germany,
which has held unit labor costs
flat, largely on the back of strong
productivity growth. France’s share
of exports to the eurozone fell by
nearly four percentage points—
from 16.8% to 13.2%—in 2009.
While recovering global demand
and the euro’s depreciation against
by the ruling party in March 2010
regional elections. Following these
poor results, President Nicolas
Sarkozy decided to prioritize
pension reform. A major proposal
is due in September. The new
labor minister, Eric Woerth, is
coordinating policy with employers
and trade unions and may raise
the legal retirement age from 60
as well as increase the period for
which workers must contribute,
despite the unpopularity of such
moves. Sarkozy has signaled he
will aim to maintain pensioners’
living standards, however, implying
that their benefit rates will remain
untouched.
■ ■ ■
17 | gloBal markeT BrieF & laBor risk index Q2 2010
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
Portugal’s minority government is increasingly divided and under international pressure to address the deficit. This instability will complicate Portugal’s ability to implement austerity measures the EU and the IMF will demand if an aid package proves necessary. Elections won’t be held until 2013, however, meaning that some workable political arrangement needs to be struck. An external support package could actually help to bring one about, as increased funds might provide the government more room to maneuver.
Portugal
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3
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Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality Contentment
NXÇÅ
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
overview
risk index
Baltics
Belgium
Bulgaria
czech republic
denmark
France
germany
hungary
ireland
italy
luxembourg
netherlands
norway
poland
portugal
romania
russia
spain
sweden
switzerland
Turkey
ukraine
united kingdom
middle easT and aFrica
aBouT sponsors
cost of doing business for the
foreseeable future.
Portugal also faces public financing
challenges, exacerbated in April
by the downgrade of its sovereign
debt rating. With financial market
players increasingly concerned
about the sustainability of Portugal’s
public debt, it is increasingly likely
that Portugal will seek aid from the
eurozone and the IMF. Such an
arrangement could support a long-
term adjustment effort.
The government is already
implementing an austerity plan,
which has been met with significant
public protests that may continue
snarling the country’s public
➔ Portugal’s economic
situation recently deteriorated
as the budget deficit was
estimated to be even wider than
earlier expected: about 9.3%
of GDP in 2009. The downturn
continued through 2009, with GDP
contracting 2.7%. The 2009 annual
unemployment rate was 9.6%, and
there are no indications of a reversal
in 2010. Portugal lacks obvious
areas of comparative advantage to
fuel growth and eastern European
countries are expected to become
more competitive in terms of the
transit system. To curb public
expenditures, the government
plans to freeze the pay levels of
about 700,000 public employees
and to hire one civil servant for
every two leaving the service.
The government also plans to
implement a ceiling on government
transfers to social security to fund
benefits, which may reduce the
consumer demand in the near
term. Tax reforms, moreover, will
cut welfare benefits and cancel
certain tax breaks. Fewer tax
breaks may further strain domestic
demand already threatened by
unemployment.
■ ■ ■
18 | gloBal markeT BrieF & laBor risk index Q2 2010
Overview:Middle East and Africa
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
middle easT and aFrica
overview
risk index
algeria
egypt
israel
kenya
kuwait
morocco
Qatar
saudi arabia
south africa
united arab emirates
aBouT sponsors
the US or Israel in the short term,
they continue to be wary of their
neighbor and its nuclear ambitions.
Even if there is no attack on Iran,
Tehran does have the capacity
to undermine the GCC states.
Likewise, despite the low likelihood
of an Israel-Iran confrontation,
tension between Hizbullah—Iran’s
main regional proxy—and Israel
is rising. An Israel-Hizbullah
confrontation would destabilize
Lebanon and widen the gulf
between the GCC states and Iran.
As far as Egypt is concerned,
President Hosni Mubarak’s illness
and the rise of a formidable
challenger in former International
Atomic Energy Agency (IAEA)
head Mohamed ElBaradei has put
the carefully crafted succession
➔ The diverse economies
of the Middle East and Africa will
enter the second half of 2010
facing various challenges. But as
the global recession subsides, the
region is poised for steady, if not
spectacular, growth.
At this stage, the main threats to
growth are political and security
related. While the oil producing
states of the Gulf Cooperation
Council (GCC) are operating on the
assumption that there will not be
military conflict between Iran and
plans on hold—or might shelve
them altogether. In Algeria, the
growing hostility between the
military and the president could
destabilize his administration. South
African authorities, meanwhile, are
positive about the implications of
a successful World Cup in June
and July, but are also aware of the
far-reaching consequences of a
crime spree and/or terrorist attacks
during the tournament. Lastly, in
Kenya, while the adoption of a new
constitution is broadly positive,
implementation of the newly
decentralized political system could
fan regional and ethnic rivalries
around the next national elections.
■ ■ ■
19 | gloBal markeT BrieF & laBor risk index Q2 2010
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
middle easT and aFrica
overview
risk index
algeria
egypt
israel
kenya
kuwait
morocco
Qatar
saudi arabia
south africa
united arab emirates
aBouT sponsors
macro risks laBor risks
political social security economicForeign
investmentFlexibility availability Quality contentment
Algeria 3 YY 4 6 Y 3 3 2 6 3 2 Y
Egypt 6 5 Y 7 5 5 5 3 2 2
Israel 7 X 8 X 7 X 8 7 6 6 8 X 7
Kenya 5 X 3 6 4 X 5 5 4 4 4
Kuwait 6 X 5 7 5 5 X 8 3 7 8
Morocco 7 X 7 8 6 X 5 X 5 4 4 5
Qatar 7 7 8 5 X 6 8 3 5 8
Saudi Arabia 6 5 X 7 Y 6 X 6 7 4 6 7
South Africa 6 Y 3 6 5 6 Y 4 6 4 3
United Arab Emirates 7 6 7 Y 5 5 8 3 6 7
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’.
middle easT and aFrica – risk index summary TaBle – Q2 2010
20 | gloBal markeT BrieF & laBor risk index Q2 2010
very positive trend
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negative trend
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current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
Despite press reports about a possible reworking of the water-sharing agreement between countries in the region (notably Egypt, Sudan, Ethiopia, Uganda, and Kenya), Egypt will aggressively block any change. Its effective domination of the Nile and its veto power over upstream water projects is something that all Egyptian political actors believe is sacrosanct and key to Egypt’s economic well-being. The issue will continue to arise, but it is unlikely that the parties will reach a new agreement.
Egypt
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Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality Contentment
NXÇÅ
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
middle easT and aFrica
overview
risk index
algeria
egypt
israel
kenya
kuwait
morocco
Qatar
saudi arabia
south africa
united arab emirates
aBouT sponsors
a concern for the authorities.
The government hopes that by
maintaining social services it can
counter any instability resulting
from unemployment. GDP growth
in 2010 will probably come in at
around 5%, though this is below the
economy’s full potential.
The government is likely to boost
spending in the run-up to the
fall parliamentary elections. The
elections are shaping up to be
less open and fair than recent
votes, and the government, by
opening its purse strings, will
try to undermine opposition
groups considering protests. The
biggest story in Egypt, however, is
President Mubarak’s recent illness
➔ The Egyptian economy will
continue its steady if unspectacular
trajectory during the second
quarter. Inflation has not eased
as quickly as the government had
hoped, and will probably end the
year near 10%. The authorities
would prefer a lower number but
do not think that price pressure of
this magnitude will be destabilizing.
Official statistics indicate that
unemployment is below 10%, but
the real number of unemployed
and underemployed is probably
much higher, and as in many
other Arab states, this remains
and its impact on the succession
and overall stability. Mubarak’s
opponents will continue to ratchet
up the pressure on him to clarify
a succession plan. The president
will ignore any such move because
it would be taken as a sign of
weakness, especially now that
former IAEA director ElBaradei
has returned to Egypt and is
continuing his vocal criticism of the
government. ElBaradei’s popularity
is growing, and the authorities do
not appear to know how to sideline
him. While tension will rise in the
coming months, destabilizing
violence is unlikely. Neither is the
government likely to pursue any
radical policy shifts.
■ ■ ■
21 | gloBal markeT BrieF & laBor risk index Q2 2010
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
Beginning in late 2010, the UAE will allow foreigners to hold controlling ownership stakes in UAE-based companies, part of a broad and careful liberalization process that will likely result in more foreign investment in the UAE. The new law will increase the limit on foreign ownership from the current 49% to as yet an unspecified percentage, although 100% foreign ownership will not be permitted.
United Arab Emirates
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3
4
5
6
7
8
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10
Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality Contentment
NXÇÅ
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
middle easT and aFrica
overview
risk index
algeria
egypt
israel
kenya
kuwait
morocco
Qatar
saudi arabia
south africa
united arab emirates
aBouT sponsors
media reports were saturated with
often alarmist stories about foreign
workers fleeing the UAE, but the
labor force is now stable. In fact,
many of the people who left Dubai
have moved to Abu Dhabi, which is
pursuing large-scale infrastructure
projects.
The UAE is still dealing with
fallout from the Dubai debt crisis,
however. Dubai World offered a
broadly generous restructuring
plan that includes full repayment
but with extended maturities. The
plan provides a short-term fix, but
future support from Abu Dhabi
may be necessary if Dubai and its
real estate sector do not benefit
➔ The economy of the United
Arab Emirates (UAE) has largely
stabilized since the Dubai crisis.
After the economy shrank by 3.5%
in 2009, authorities now estimate
GDP will grow by about 2.5% in
2010. This projection is largely in
line with independent analysis. With
oil prices above $80 per barrel, Abu
Dhabi’s economy will expand and
will sustain the rest of the emirates.
Officials think that inflation could
reach about 2% in 2010. At the
height of the global recession, local
from a strong economic rebound.
While Abu Dhabi will continue to
guarantee Dubai’s liabilities, its
willingness to provide financial
support is waning, making it more
likely that future assistance would
entail more explicitly commercial
terms. The current plan’s terms
were driven by the recognition
that Dubai still needs external
financing and that it cannot
alienate creditors. In addition, Abu
Dhabi’s government recognizes the
difficulties of separating out Dubai
World–related credit risk from that
of the UAE as a whole, and it wants
to avoid a broader contagion.
■ ■ ■
22 | gloBal markeT BrieF & laBor risk index Q2 2010
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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Published on a quarterly basis, the Global Market Brief & Labor Risk Index is segmented by four geographies: the Americas, Asia-Pacific, Europe and Eurasia,
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