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Think ouTside.
Global Market Brief & Labor Risk Index
2009 4meThodology sample reporT only
Global Market Brief & Labor Risk Index
2009
This is meThodology sample reporT only.
To subscribe to the global market Brief & labor risk index, visit kellyocg.com/marketbrief
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. © 2009 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 el salvador
13 mexico
14 united states
15 Venezuela
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 philippines
28 singapore
29 south korea
30 sri lanka
31 Thailand
32 Vietnam
Europe and Eurasia34 overview
35 risk index
36 Baltics
37 Belgium
38 croatia
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 kuwait
66 morocco
67 nigeria
68 Qatar
69 saudi arabia
70 south africa
71 united arab emirates
cover: pudong district, shanghai, china © 2009 Alex Nikada
gloBal markeT BrieF & laBor risk index Q4 2009
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
management of labor pools and
expectations of future labor markets.
On the upside, Japan, Australia,
China, and India all sidestepped the
worst of the downturn. Germany
and France beat the US to show
economic improvement, but the US
and Canada now appear on track for
a protracted recovery. Aggressive
fiscal spending backed by strong
domestic demand and lowered
macroeconomic vulnerabilities has
perhaps put Brazil in the best position
for recovery, while African and Middle
Eastern countries are also responding
positively to the turnaround in
commodity demand from the world’s
leading economies.
However, arriving at this point has
revealed structural shortcomings
and exposed the reluctance of
governments to undertake reforms,
particularly in labor markets.
Argentina and Venezuela risk labor
tension in the face of inflation and
real wage destruction. Russia’s
economic turnaround is dependent
on oil prices instead of real reforms,
with unemployment potentially
rising again. The same trend is at
work in Africa where resource-rich
countries used the downturn as an
excuse to avoid making difficult
decisions to improve labor markets.
Asian economies by and large have
spent their way out of the crisis and
chose to put off structural reforms for
sunnier days, which means that the
coming year will be characterized by
continued labor market inflexibility.
Lastly, the US’s labor markets will
remain fragile for the foreseeable
future, while Europe is still very
vulnerable to credit and liquidity
risks, with subsequent risks to
labor markets.
■ ■ ■
➔ While the global
macroeconomic picture may look
more stable, labor markets are still
on shaky ground. Many of the world’s
economies are navigating out of
the economic downturn, with some
tentatively swinging upward and
others just now bottoming out. But
many of the strategies deployed to
weather the recession have strained
underlying structural fundamentals
and squeezed countries’
gloBal markeT BrieF & laBor risk index Q4 2009
➔ The 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.
Methodology 4 economic
This variable captures the current
health of the macroeconomic
environment and the stability
of future economy activity
by aggregating measures of
government fiscal stability, the
monetary environment, national
account balances, and economic
growth.
5 policy environment
for Foreign investment
This variable measures how
hospitable the policy and regulatory
environment is for foreign investment
by assessing the extent to which
there are barriers to economic
activity, particularly cross-border
activity, and the degree to which the
economy is a destination for foreign
investment.
laBor risks
6 Flexibility
This variable considers the flexibility
that employers have in managing
human resources, the ability of labor
to engage in collective action, and
the potential for the labor regulatory
environment to change.
7 availability
This variable incorporates migration,
urban population, the size of the
labor force, and the extent to which
women participate in the labor force
as a measure of the availability of
labor in the economy.
8 Quality
This variable considers measures
of the education and skill level of a
labor force, a measure of the general
health of the population, and labor
productivity.
9 (dis)content
This variable examines the
potential for near-term labor unrest
by aggregating factors such as
unemployment and assessments
of the likelihood of labor unrest by
subject matter experts.
■ ■ ■
For all variables, scores range
from 1 to 10, where 1 is ‘high risk’
and 10 is ‘low risk’.
macro risks
1 political
This variable captures regime stability
by assessing popular legitimacy,
which is in part influenced by how
well the government functions, and
the regime’s ability to enforce policy
compliance.
2 social
This variable captures the extent to
which ethnic and other minorities are
engaged in social or political conflict,
controlling for the mitigating effects
of the socioeconomic wellbeing of
the population and the equality of
wealth distribution.
3 security
This variable is a function of the
existence or risk of armed conflict
(either domestic insurgencies or
cross-border threats) and internal
personal security issues.
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
gloBal markeT BrieF & laBor risk index Q4 2009
Overview: The Americas
government’s stimulus efforts and
a pickup in commodity prices. The
US and Canada are also showing
positive signs of a turnaround, but
a fragile labor market in the US
and subdued manufacturing and
exports in Canada will likely translate
into a more modest, protracted
economic recovery. At the other
end of the spectrum, Argentina
and Venezuela, while also showing
signs of bottoming out, are likely to
struggle to restart economic growth
because of their negative policy
mixes, which continue to discourage
investment and have produced
heavy economic distortions such as
➔ Most countries in the
Americas appear to have reached
or are approaching bottom after
several quarters of economic decline,
and are beginning to show tentative
signs of economic recovery. Brazil
appears to be the best positioned
of all, with GDP growth projected
to be flat this year and as much
as 4.5% in 2010, thanks to the
double-digit inflation. The recovery
of the labor market will go hand-in-
hand with the scope and size of the
economic recovery throughout the
region. While unemployment levels
are already beginning to decline
in Brazil and Canada, they remain
stubbornly high elsewhere in the
Americas. Labor tension is also on the
rise in some of the region’s economic
laggards, particularly Argentina and
Venezuela, where both the Cristina
de Kirchner and Hugo Chavez
administrations are struggling to
increase wages alongside inflation.
■ ■ ■
conTenTs
preFace
meThodology
The americas
overview
risk index
argentina
Brazil
canada
chile
el salvador
mexico
united states
Venezuala
asia paciFic
europe and eurasia
middle easT and aFrica
aBouT sponsors
gloBal markeT BrieF & laBor risk index Q4 2009
macro risks laBor risks
political social security economicForeign
investmentFlexibility availability Quality (dis) content
Argentina 5 Y 6 8 4 5 Y 4 6 7 4 Y
Brazil 7 6 7 5 X 5 Y 3 6 5 6 Y Y
Canada 6 Y 8 10 7 X 8 7 8 9 6 Y
Chile 7 6 9 6 X 7 5 5 8 6 Y
El Salvador 6 6 5 5 X 7 4 4 5 6 Y
Mexico 6 6 5 X 5 X 7 3 X 4 6 6 Y Y
United States 8 8 Y 7 6 Y 9 7 7 8 7 Y Y
Venezuela 7 5 6 3 2 2 5 5 1 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’.
The americas – risk index summary TaBle – Q4 2009
conTenTs
preFace
meThodology
The americas
overview
risk index
argentina
Brazil
canada
chile
el salvador
mexico
united states
Venezuala
asia paciFic
europe and eurasia
middle easT and aFrica
aBouT sponsors
gloBal markeT BrieF & laBor risk index Q4 2009
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
The Cristina Fernandez de Kirchner administration emerged weakened from its defeat in the June elections. The government, however, has resisted pressures to adjust to economic policy. In fact, it has intensified its battles with the media and the farming sector. Political tension will increase further in March 2010 when the newly elected congress is installed.
Argentina
0
1
2
3
4
5
6
7
8
9
10
Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality (Dis)content
NXÇÅ
conTenTs
preFace
meThodology
The americas
overview
risk index
argentina
Brazil
canada
chile
el salvador
mexico
united states
Venezuala
asia paciFic
europe and eurasia
middle easT and aFrica
aBouT sponsors
elections, had pushed to delay
annual wage negotiations between
companies and unions. Following the
vote, the government announced a
21% increase in the minimum wage.
Earlier in June, the local teamsters
and metal workers—considered
the labor movement’s benchmark
negotiators—had obtained 17% and
16.5% wage increases, respectively.
Elsewhere, labor tension continues
to rise. Massive violent protests
erupted in the oil and gas producing
provinces of Santa Cruz and Chubut
in August and September. The
oil workers’ unions in these two
➔ According to recent
indicators, Argentina’s economy has
hit bottom and may soon experience
a mild recovery, helped by improving
global economic conditions. But
political uncertainty and pressures on
the private sector will put a limit on
its recovery. For example, a recent
round of wage increases confirms
that labor activism remains high. The
government, which was keen to keep
labor tension at a minimum before
the 28 June midterm legislative
provinces are among the most active
in Argentina, but conflict intensified
this year as oil production dropped
along with the decline in oil prices
and the deteriorating regulatory
environment. In another sector, a
conflict involving Kraft Foods turned
violent in late September, after the
company refused to reinstate 157
workers fired in July. These types
of protests will likely continue as
unemployment and inflation remain
high in spite of the country’s mild
economic recovery.
■ ■ ■
gloBal markeT BrieF & laBor risk index Q4 2009
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
A bumpy and uneven economic recovery seems to be emerging in the US as businesses resume production and consumers open their wallets. Financial markets are stabilizing and credit risk normalized, but a glut of unemployed and under-employed mean the broader recovery will be painstaking.
United States
0
1
2
3
4
5
6
7
8
9
10
Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality (Dis)content
NXÇÅ
conTenTs
preFace
meThodology
The americas
overview
risk index
argentina
Brazil
canada
chile
el salvador
mexico
united states
Venezuala
asia paciFic
europe and eurasia
middle easT and aFrica
aBouT sponsors
are improving, financial markets
are rebounding, and residential
construction and home sales are
recovering—though this is partially
due to government support
programs like Cash for Clunkers and
a generous homebuyer tax credit.
The recent bounce in the equities
markets might portend a wider
recovery.
However, the unemployment rate
is approaching 10% and there is
concern that the pace of recovery will
not be enough to reduce the large
number of job seekers. The labor
market remains extremely fragile—
➔ A gradual and tentative
recovery is gathering pace in the
US, but there is some doubt about
the economy’s underlying strength
and durability. Nevertheless, the
steep decline in GDP halted mid-
year, bringing an end to the worst
single-year performance in the
postwar era. The improved result
was propelled by modest business
and consumer spending, and an
end to the rundown in inventories.
Corporate and consumer confidence
reflected by an unanticipated
jump in layoffs in September and a
contraction in the labor participation
rate, as discouraged workers
drop out of the labor market. This
could put pressure on the Obama
administration and Congress to show
that the costly stimulus package
is working or to pursue additional
stimulus measures. On current trends,
an economic recovery will be modest
in the latter half of 2009 before
increasing to a 2%–3% GDP growth
range in 2010.
■ ■ ■
gloBal markeT BrieF & laBor risk index Q4 2009
Overview: Asia Pacific
conTenTs
preFace
meThodology
The americas
asia paciFic
overview
risk index
australia
china
hong kong
india
indonesia
Japan
malaysia
new Zealand
philippines
singapore
south korea
sri lanka
Thailand
Vietnam
europe and eurasia
middle easT and aFrica
aBouT sponsors
the global economic downturn, and
growth projections across Asia have
been bumped upwards.
Going forward, however, some
Asian governments may be hard-
pressed to maintain their current
spending levels—particularly if the
US and other foreign markets do not
pick up significantly in 2010. Much
of Asia’s recent growth has been
supported by government stimulus
spending, rather than a recovery
in the region’s export markets. The
global downturn has also highlighted
a range of structural problems in the
Asian economies, including inflexible
labor markets. As a rule, Asian
governments prefer to spend money
at home and hope for a recovery
abroad rather than tackle politically
difficult reforms.
➔ The Asia-Pacific region
showed concrete signs of recovery
in the second quarter. Among the
region’s largest economies, Japan
returned to positive growth and
China accelerated by almost two
percentage points. Australia avoided
a technical recession with just one
quarter of negative growth, and
its central bank has been the first
to raise interest rates among the
industrialized countries. Meanwhile,
India remained very little affected by
National politics are also affecting
economic prospects in Asia. On the
upside, political stability in Malaysia
and a strong mandate for the
incumbent president in Indonesia will
allow these governments to focus on
fostering economic growth. On the
downside, continuing political chaos
in Thailand is hampering effective
policymaking. Perhaps the biggest
political story in recent months is
the victory of the Democratic Party
of Japan (DPJ) in recent elections,
ending decades of rule by the Liberal
Democratic Party (LDP). The new DPJ
government is likely to move ahead
with stimulus plans to boost social
spending in a long-term effort to
increase private consumption. Many
countries in Asia could benefit from
similar goals.
■ ■ ■
gloBal markeT BrieF & laBor risk index Q4 2009
macro risks laBor risks
political social security economicForeign
investmentFlexibility availability Quality (dis) content
Australia 8 9 9 7 8 7 7 Y 8 7 Y
China 7 6 8 6 X 6 5 7 6 7 Y
Hong Kong 7 Y 8 10 6 X 10 7 6 8 7 Y
India 7 5 5 5 X 5 5 5 3 5 Y
Indonesia 7 X 6 8 X X 5 4 X 3 6 4 5 Y
Japan 8 X 9 10 6 8 X 5 Y 5 9 9 Y
Malaysia 7 4 Y 7 4 Y 7 X 5 4 7 7 Y
New Zealand 8 9 10 6 8 Y 7 7 8 7 Y
Philippines 4 X X 4 X 8 5 X 3 X 4 X 6 5 7 Y
Singapore 9 Y 8 Y 8 6 Y 9 7 6 8 8 Y
South Korea 7 X 9 7 X 7 X 8 4 X 6 7 6 Y Y
Sri Lanka 6 4 Y 8 4 Y 5 Y 5 4 4 6 Y Y
Thailand 4 X 5 8 4 X 7 5 5 6 7 Y
Vietnam 8 6 8 4 X 6 X 5 6 X 5 7 Y 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 – Q4 2009
conTenTs
preFace
meThodology
The americas
asia paciFic
overview
risk index
australia
china
hong kong
india
indonesia
Japan
malaysia
new Zealand
philippines
singapore
south korea
sri lanka
Thailand
Vietnam
europe and eurasia
middle easT and aFrica
aBouT sponsors
gloBal markeT BrieF & laBor risk index Q4 2009
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
The latest investment announcements by developers of the massive Gorgon LNG field in Western Australia highlight the bullish sentiment surrounding Australia’s LNG sector, which is expected to be a massive job creator in Western Australia and Queensland. The greatest risks to developers are environmental activism and Australia’s emissions trading program that covers the LNG sector. Nevertheless, state governments are actively promoting development of gas fields, thereby moderating regulatory threats.
Australia
0
1
2
3
4
5
6
7
8
9
10
Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality (Dis)content
NXÇÅ
conTenTs
preFace
meThodology
The americas
asia paciFic
overview
risk index
australia
china
hong kong
india
indonesia
Japan
malaysia
new Zealand
philippines
singapore
south korea
sri lanka
Thailand
Vietnam
europe and eurasia
middle easT and aFrica
aBouT sponsors
was shorter and shallower than
forecasted, with just one quarter
of negative economic growth. The
Reserve Bank predicts a return to 3%
GDP growth in 2010 and has also
cut the forecast for unemployment,
originally expected to reach 8.5%.
The better than expected outlook
has been helped by continuing
strong export demand from China,
especially for major resources such as
iron ore and coal. The government’s
spending initiatives—targeted at low-
to middle-income households, the
building and construction sector, and
major infrastructure projects—have
also helped sustain business and
➔ Australia’s central bank
became the first in the industrialized
world to raise official interest rates in
what is seen as a harbinger of a fuller
and more widespread economic
recovery. The Reserve Bank was
one of the swiftest in cutting rates
in the immediate aftermath of
the global financial crisis. And in
October it raised the cash rate from
3.00% to 3.25%. Australia is one of
the few nations to narrowly avoid
an economic recession, at least
in a technical sense. Its downturn
consumer spending. The government
is so far resisting political pressure to
withdraw spending from its February
stimulus package, worth some 42
billion Australian dollars ($27 billion).
It is under no fiscal pressure to reduce
spending given that the country’s
debt-to-GDP ratio is roughly 14%, a
level that is modest by in comparison
to other developed economies. Now
the task at hand is to manage the
economic recovery, which will likely
include further interest rate hikes.
■ ■ ■
gloBal markeT BrieF & laBor risk index Q4 2009
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
One growing concern is the rapid population increase over the last two years, to 5 million. Foreigners make up 1.25 million of that number—an increase of 500,000 from 2008—and the number of permanent residents has risen to a total of 533,000. Further rapid increases in population size in the near term would put excessive strain on the country’s current infrastructure. Existing government projections only plan for the population to hit 6.5 million in the next 20 years.
Singapore
0
1
2
3
4
5
6
7
8
9
10
Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality (Dis)content
NXÇÅ
conTenTs
preFace
meThodology
The americas
asia paciFic
overview
risk index
australia
china
hong kong
india
indonesia
Japan
malaysia
new Zealand
philippines
singapore
south korea
sri lanka
Thailand
Vietnam
europe and eurasia
middle easT and aFrica
aBouT sponsors
is in place. The property market
improved in July, and there has been
an increase in the number of new
business startups.
Singapore has seen fewer layoffs
and more job openings over the
past quarter. Unemployment has
remained lower than expected, at
about 3%, due in part to the 4.5
billion Singapore dollars put into the
government’s Jobs Credit Scheme.
Under the scheme, the government
has paid employers 12% of each
employee’s monthly wages, up to
2,500 Singapore dollars per month.
The government has extended the
scheme for an additional six months
beyond the previous deadline
➔ Singapore is showing
promising signs of a return to strong
growth. The country’s economic
rebound, which began in the second
quarter of 2009, is expected to
continue for the remainder of the
year, although overall growth for
2009 is expected to remain negative.
There has been some improvement
in the manufacturing sector,
which accounts for a quarter of
Singapore’s economy. Electronics and
pharmaceuticals in particular have
shown signs of improvement. Other
indicators also suggest a recovery
of December 2009, although at
stepped-down rates of 6% and
3% respectively for the next two
quarters. Despite the wage credits,
the manufacturing industry continues
to see job losses, although the rate
has slowed. Employment in the
construction and services industries
has slowly begun to improve.
Nevertheless, any sustainable
recovery in Singapore’s economy will
rely on the return of global demand.
Singapore remains one of the most
trade-dependent economies in the
world, with a trade-to-GDP ratio of
more than 300%.
■ ■ ■
gloBal markeT BrieF & laBor risk index Q4 2009
Overview:Europe and Eurasia
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
overview
risk index
Baltics
Belgium
croatia
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
in the private sector, as banks use
ECB funds to purchase government
debt. The future tax policy
consequences of these responses
are uneven, but increases are likely
almost everywhere.
Similar risks are evident in Russia,
though there have been some
recent bright spots—notably a
decline in unemployment, which
has been well received by Russian
policymakers. However, the Russian
economic recovery remains tentative
and fragile. The economy is highly
vulnerable to a correction in oil prices
and to any return of the global credit
squeeze that plagued markets in
early 2009. Additionally, there are
concerns that seasonal factors, rather
➔ Strains in the financial and
real economy are evident across
Europe and Eurasia, despite data
showing slight growth in some key
countries. In eastern Europe, credit
and liquidity factors are worse than
in western Europe, and the health
of the banking sector is an ongoing
uncertainty. The European Central
Bank’s liquidity-boosting operations
seem to have helped minimize
sovereign financing risks, but this may
result in a crowding out of investment
than an underlying improvement in
the economic environment, have
supported employment levels and
that unemployment may begin to rise
again toward the end of the year.
In Turkey, growing debt and deficits
are a major concern. However, a
new stand-by agreement with the
IMF would provide cheap financing
and leave more room for private
borrowing in domestic debt markets.
Still, budget cuts are a major political
challenge because the government
is wary to take such measures in
advance of the 2011 election.
■ ■ ■
gloBal markeT BrieF & laBor risk index Q4 2009
political social security economic Foreign Flexibility availability Quality (dis) content
Baltics 7 7 8 4 7 3 5 7 3
Belgium 6 7 8 6 8 5 6 8 6
Croatia 6 X 8 8 5 7 5 6 7 4
Czech Republic 5 Y 9 8 6 6 Y 6 6 8 6
Denmark 7 9 8 7 9 6 5 8 6
France 7 8 7 6 8 4 6 8 5
Germany 7 X 9 8 6 8 X 5 6 9 3
Hungary 5 Y 7 9 4 X 8 6 6 7 4
Ireland 6 9 8 6 9 6 6 8 5
Italy 7 8 7 6 6 4 6 8 5
Luxembourg 7 9 8 7 7 5 5 9 7
Netherlands 6 8 8 6 8 5 5 8 8
Norway 7 9 8 6 9 4 5 9 8
Poland 6 X 7 9 5 X 7 X 5 6 7 5
Portugal 7 8 7 6 7 Y 2 6 X 7 5
Romania 6 Y 6 7 3 6 4 5 6 3
Russia 7 Y 6 Y 6 6 X 6 6 7 6 5 YSpain 7 7 Y 7 6 7 2 8 8 3
Sweden 8 9 8 7 8 4 6 X 9 6
Switzerland 7 9 8 7 8 6 5 9 8
Turkey 6 6 5 4 X 7 4 X 5 5 4
Ukraine 4 Y 6 X 7 2 5 6 6 5 5
United Kingdom 7 8 6 6 9 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 – Q4 2009
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
overview
risk index
Baltics
Belgium
croatia
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
gloBal markeT BrieF & laBor risk index Q4 2009
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
Belgium’s economy remains stuck in recession and unemployment is uncomfortably high. The export-driven economy has limited scope to dictate its own fortune and will rely heavily on the economic performance of France and Germany, which in turn reflect broader global demand drivers. Accordingly, lawmakers and officials may have relatively limited scope for policy responses.
Belgium
0
1
2
3
4
5
6
7
8
9
10
Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality (Dis)content
NXÇÅ
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
overview
risk index
Baltics
Belgium
croatia
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
government spending has held up
reasonably well and helped to boost
public investment. This is, however,
a reflection of a political decision,
rather than recovering fundamentals.
In addition, declining tax revenues
mean increasing governmental
financing needs. This suggests future
tax increases.
Labor unions are strong politically,
and they are increasingly
assertive in terms of demands
on the government to deal with
employment declines. This political
action could limit wage declines
associated with broader demand
trends—a situation not uncommon in
much of Europe.
➔ Unemployment is an
increasingly pressing concern. The
jobless rate has topped 8% as the
country remains locked in a yearlong
economic decline. GDP dropped by
0.3% in the second quarter of 2009
and is down 3.7% over the course of
the year. However, the rate of decline
is slowing, raising hopes that the
economy will shortly see some uplift
in the wake of stronger performances
from the major European economies
of France and Germany. And while
household spending remains weak
(it has not grown for five quarters),
The policymaking efficacy of the
Belgian political system is often
compromised by the divide between
the country’s ethno-linguistic groups.
While this is not a new phenomenon,
economic pressures make it a larger
problem. In addition, because a
good deal of governing responsibility
is at the local level, the ability to
implement public works programs
and other responses that might help
alter the demand outlook is more
complicated than in many other
countries.
■ ■ ■
gloBal markeT BrieF & laBor risk index Q4 2009
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
A significant political battle is brewing over tax cuts. Elements within the Christian Democrats, backed by the Free Democrats, want to push tax reductions. However, the chancellor maintains support for a balanced budget. The issue cannot be easily resolved, but the breakdown of the prevailing consensus on the budget could have some spillover effect, leading to more divergent fiscal policy in the eurozone as a whole—which in turn could have important implications for wages.
Germany
0
1
2
3
4
5
6
7
8
9
10
Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality (Dis)content
NXÇÅ
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
overview
risk index
Baltics
Belgium
croatia
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
September elections gave a very
narrow majority to a coalition of
the Christian Democrats and the
Free Democrats, ending a four-
year arrangement under which the
Christian Democrats had to rely on
their usual opponents, the Social
Democrats, as a coalition member.
While this will bring about a more
ideologically consistent government,
serious strains are likely to emerge,
particularly over tax and broader
fiscal policy. In addition, Chancellor
Angela Merkel could face leadership
contests as the new term progresses.
The new government is likely to
push back against political pressures
for wage hikes, and will oppose
➔ While Germany posted very
narrowly positive GDP growth in
mid-2009, significant risks remain. In
addition, this data may simply reflect
one-off measures, such as a widely
utilized car-scrapping program or
monetary loosening carried out by
the ECB. Serious risks to the banking
sector remain, and a number of firms
are under heavy pressure. In addition,
the global demand outlook—vital
given how important exports are to
the German economy—is still
very uncertain.
efforts to establish a minimum
wage. This bodes well for labor cost
containment. However, while the
Social Democrats performed very
poorly, it is that party’s centrist bloc
that will suffer. As a result, the Social
Democrats could begin to push for
more aggressive wage increases
and other benefits that would raise
costs to employers. They may also
be politically strengthened if new
leadership is able to ally with the
Left party—something the outgoing
leadership refused to do. The current
strength of the center-right does
not mean these risks should be
taken lightly.
■ ■ ■
gloBal markeT BrieF & laBor risk index Q4 2009
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
kuwait
morocco
nigeria
Qatar
saudi arabia
south africa
united arab emirates
aBouT sponsors
economy, they are also trying to
design new labor policies and
develop reliable human capital, which
appeared to be lacking as they tried
to manage the global financial crisis
domestically. Some nations such
as Saudi Arabia have revived major
educational projects. Others—such
as Kuwait, Qatar, and Bahrain—are
implementing new labor laws that
would raise the skill level of their
workforces. Many Gulf leaders
now admit that they need to make
labor conditions more attractive by
providing workers with the freedom
to choose their employer and
manage their employment contracts
as they wish. By creating better
working conditions in their countries,
governments hope to attract high-
quality managers, who can train a
native workforce and make it more
competitive.
➔ As commodity prices rise,
many countries in the Middle East
and Africa are starting to operate
under the assumption that the
recession is nearing an end. But
the global financial crisis exposed
significant shortcomings in a number
of political and economic systems.
Many leaders are now considering
new economic and labor policies to
avoid future financial shocks, but in
almost all cases the state will remain a
key actor in the local economy.
While many Middle Eastern
governments are focused on
strengthening their role in the
With respect to Africa, commodity-
dependent countries such as Algeria,
Zambia, Angola, and Uganda
seem to have recovered from the
initial shock and consequences of
the global economic crisis. Many
governments in the region view
2010 as a year of relative economic
growth, but they also must deal
with structural challenges, which will
keep them exposed to potential
volatility. Widespread concerns about
economic instability across Africa has
fostered corruption at the highest
levels and weakened the notion of
good governance and transparency.
This could gradually discourage
foreign investors and keep these
economies in a state of stagnation.
Short of addressing these issues,
many African governments will not
be able to withstand another shock.
■ ■ ■
gloBal markeT BrieF & laBor risk index Q4 2009
macro risks laBor risks
political social security economicForeign
investmentFlexibility availability Quality (dis) content
Algeria 3 Y 6 4 X 4 Y 3 3 5 4 3 Y
Egypt 6 7 8 5 6 X 5 4 4 1 Y
Israel 5 7 5 Y 8 X 8 X 4 4 8 6 Y
Kuwait 3 Y 7 7 5 4 7 X 4 X 8 7 X Y
Morocco 7 6 9 5 X 7 X 4 4 4 X 5 Y
Nigeria 5 Y 2 3 3 Y 5 6 5 2 Y 2 Y
Qatar 8 X 8 7 6 X 6 6 4 6 Y 8
Saudi Arabia 8 X 7 5 Y 6 7 6 5 6 5
South Africa 7 5 5 Y 5 7 3 Y Y 7 5 3
UAE 7 8 8 4 Y 6 Y 7 5 8 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 – Q4 2009
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
middle easT and aFrica
overview
risk index
algeria
egypt
israel
kuwait
morocco
nigeria
Qatar
saudi arabia
south africa
united arab emirates
aBouT sponsors
gloBal markeT BrieF & laBor risk index Q4 2009
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
Although a confrontation between Israel and Hizbullah is relatively unlikely in the near term, the Lebanese militia has reportedly acquired new missiles with ranges that can reliably target Haifa and Tel Aviv. If Israel and Hizbullah descend into conflict, there would likely be an exodus of workers from Haifa and Tel Aviv, and economic activity would be severely constrained.
Israel
0
1
2
3
4
5
6
7
8
9
10
Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality (Dis)content
NXÇÅ
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
middle easT and aFrica
overview
risk index
algeria
egypt
israel
kuwait
morocco
nigeria
Qatar
saudi arabia
south africa
united arab emirates
aBouT sponsors
economy, which in turn is pushing
up the unemployment rate. The
Bank of Israel opted to leave interest
rates unchanged for October, in
part due to conditions in the labor
market and the stronger shekel,
which increased by 2.6% against the
dollar in September. Unemployment
continues to rise, although at a slower
pace than during previous recessions
(notably 2001–2003) and it appears
to be remaining at a lower rate than
the central bank anticipated.
Because of its strong alliance
with Histadrut, the Israeli labor
organization, the prime minister’s
➔ Israel looks to be emerging
ahead of most countries from the
global slump, thanks to proactive
measures by the Bank of Israel and
stimulus spending by the normally
fiscally conservative Prime Minister
Benjamin Netanyahu. In September,
Bank of Israel Governor Stanley
Fischer was the first central banker
in OECD countries to raise interest
rates. Nonetheless, the continuing
weak US dollar is prolonging troubles
for Israel’s export-dependent
office is likely to be very mindful
of labor conditions and the
unemployment rate. In fact, it has
taken a very solicitous approach to
firms that are considering layoffs
or shutting down, offering tax
breaks and other incentives to keep
employees on the payrolls. Israel’s
unemployment rate is likely to
continue to rise slightly in the coming
months, but it will stabilize when the
dollar strengthens and Israel’s exports
rebound.
■ ■ ■
gloBal markeT BrieF & laBor risk index Q4 2009
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
Annual crime statistics show a 3.4% decrease in the murder rate compared to the previous year. However, the murder rate remains one of the highest in the world, while the number of rapes, robberies, and hijackings increased from recent years. The government has committed additional resources to fighting crime ahead of the FIFA 2010 World Cup.
South Africa
0
1
2
3
4
5
6
7
8
9
10
Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality (Dis)content
NXÇÅ
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
middle easT and aFrica
overview
risk index
algeria
egypt
israel
kuwait
morocco
nigeria
Qatar
saudi arabia
south africa
united arab emirates
aBouT sponsors
and unions, which form a key part of
his support base. The Congress of
South African Trade Unions (Cosatu)
is becoming increasingly vocal in
its calls for policy change, which
include banning temporary labor
brokers and amending the monetary
policy regime. Zuma’s government is
unlikely to yield to most of Cosatu’s
demands, but the resulting tension
could cause policy paralysis as they
filter through to similar disputes
within cabinet.
The policy challenges ahead are
formidable. Despite a decline in
poverty levels, improved access to
➔ After a quiet first 100 days
in office, President Jacob Zuma
is starting to play a more active
political role and his authority is
growing. He signaled his intention
to ensure better policy coordination
and implementation with solid initial
appointments and the formation
of a national planning commission,
headed by former finance minister
Trevor Manuel. But Zuma’s leadership
will be tested as he tries to balance
the competing interests of business
potable water, and better school
attendance, levels of inequality are
growing. But 13 million citizens
are now recipients of social grants.
The real economy has come under
significant pressure from the global
economic crisis. In response, the
government has indicated that it will
maintain public spending, but with
revenue collection falling, the budget
deficit will widen. Difficult decisions
will have to be made if fiscal
discipline is to be maintained.
■ ■ ■
gloBal markeT BrieF & laBor risk index Q4 2009
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.
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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
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exiT
gloBal markeT BrieF & laBor risk index Q4 2009
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