Q2 2011 Global Market Brief & Labor Risk Index

2011 2Think ouTside.

Global Market Brief & Labor Risk Index

meThodology sample reporT only

www.eurasiagroup.net

www.kellyocg.com

Global Market Brief & Labor Risk Index

2011

This is meThodology sample reporT only.

To subscribe to the global market Brief & labor risk index, visit kellyocg.com/marketbrief

2

www.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. © 2011 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 Bangladesh

21 china

22 hong kong

23 india

24 indonesia

25 Japan

26 malaysia

27 new Zealand

28 philippines

29 singapore

30 south korea

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

chicago city skyline © 2010 Pawel Gaul

4 | gloBal markeT BrieF & laBor risk index Q2 2011

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 sponsorsIn the Middle East, a wave of

spontaneous democratization

movements that began in Tunisia

quickly spread into Egypt and

then across the region. These

revolts have overwhelmingly

focused on local conditions and a

range of complaints against home

governments from corruption to

a lack of economic opportunities

for youth. The high youth

unemployment rate in many Middle

East and North African countries

has been a structural risk factor for

years, and finally it seems to have

come to a head. It remains to be

seen exactly how governments in

the region will address these issues.

Even short of regime change, it

is clear that the unrest will affect

economic and social policymaking

in the near to medium term.

Economies are booming

throughout most of Asia and

Latin America. However, this

strong growth comes with its own

risks, as inflation concerns grip

governments, especially in Asia.

As authorities implement a range

of policies to counteract inflation,

economic performance may start

to diverge. In Europe, government

debt dynamics continue to

dominate the policymaking

environment, with Portugal being

the latest country to seek a bailout

from the EU and IMF. And in North

America, the US is continuing its

slow recovery, while Canada is still

outperforming its neighbor thanks

to high prices for its commodity

exports.

■ ■ ■

➔ In the last quarter, the world

has experienced the broadest

and most volatile political risk

environment since the collapse

of the Soviet Union. Widespread

unrest in the Middle East and an

enormous catastrophe in Japan

both have long-term implications

for the global energy mix—all of

which is set against a backdrop

of global political and economic

rebalancing.


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


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.


Overview: The Americas

conTenTs

preFace

meThodology

The americas

overview

risk index

argentina

Brazil

canada

chile

el salvador

mexico

united states

Venezuela

asia paciFic

europe and eurasia


aBouT sponsors

Sustained inflationary pressures

may encourage workers to demand

higher wages.

This is the case in Argentina, Brazil,

and Chile. In Argentina, high levels

of government spending in the

run up to this October’s national

elections should boost economic

growth and the incumbent Peronist

party’s chances. It will also fuel

already high inflation and labor

unrest given concerns about

the rising cost of living. In Brazil

and Chile, inflationary pressures

fueled by strong economic growth

and a tight labor market mean

that workers should continue

to have good leverage in wage

negotiations.

➔ In general, the region’s

countries are benefitting from

high commodity prices. Most have

recovered from the economic

crisis and many governments in

the region have taken measures

to reduce their vulnerabilities to

external shocks. Strong and steady

growth, however, will depend on

stable global conditions. The rising

threat of inflation, combined with

pressure on local currencies, will

pose a challenge for policymakers.

On the other hand, the economic

recovery in some countries, such

as the US and El Salvador, is

relatively weak and governments

have struggled to reduce

unemployment. El Salvador is

struggling with a sluggish economy.

Mexico has seen good growth,

but the government is worried

about the pace of job creation.

Venezuela, meanwhile, continues

to experience economic problems.

Even though the economy should

benefit from a sustained increase in

oil prices, Venezuela continues to

suffer from shortages of goods, a

scarcity of foreign exchange, high

unemployment, and an inflation

rate that will likely hover around

30% this year.

■ ■ ■


macro risks laBor risks

political social security economicForeign

investmentFlexibility availability Quality contentment

Argentina 6 X 7 8 5 5 6 4 7 3 Y

Brazil 8 Y 6 6 7 Y 5 4 5 5 5

Canada 5 Y 8 10 6 7 Y 8 6 9 6 X

Chile 7 6 9 8 X 7 7 5 Y 8 5

El Salvador 6 Y 5 5 Y 4 6 6 4 4 6

Mexico 7 6 5 Y 7 X 7 6 6 7 7

United States 7 Y 8 8 7 9 8 9 8 5

Venezuela 4 4 Y 5 3 2 Y 2 4 5 2

The americas – risk index summary TaBle – Q2 2011

conTenTs

preFace

meThodology

The americas

overview

risk index

argentina

Brazil

canada

chile

colombia

mexico

panama

united states

asia paciFic

europe and eurasia


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’.


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

Employers continue to convert defined benefit pension plans into defined contribution plans. A recent survey found that 51% of employers had already switched, while another 20% planned to do so. This is adding to concerns about the adequacy of the pension system as baby boomers reach retirement age. The Conservative government is offering to expand its tax-free savings plan so Canadians can cushion their retirement, but has rejected expanding the public pension system.

Canada

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Political Social Security

MACRO RISKS LABOR RISKS

Economic Foreign Investment

Flexibility Availability Quality Contentment

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conTenTs

preFace

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The americas

overview

risk index

argentina

Brazil

canada

chile

el salvador

mexico

united states

Venezuela

asia paciFic

europe and eurasia


aBouT sponsors

policy uncertainty, but will have little

near-term impact on the economy.

High commodity prices, notably

for oil, wheat, copper, and gold,

continue to underpin Canada’s

growth. Heading into the summer,

growth should slow, even as the

labor market continues to swell. The

economy has now replaced all of

the jobs lost during the recession.

Gains have been fairly broad-based

with hours worked and average

hourly wages up by more than 2.5%.

However, federal and provincial

governments have shifted into

austerity mode, and restrained

public-sector spending will slow the

pace of overall employment growth.

➔ The Canadian economy is

expected to moderate its stellar

first-quarter growth of 5.2% as

restrained government spending,

a stronger currency, and possible

interest rate increases begin to bite

in the second and third quarters.

Canada will benefit from the

powerful momentum built up in

the first quarter: the OECD expects

3.8% year-on-year growth in the

second quarter, a slightly more

bullish figure than private sector

forecasters predict. A 2 May federal

election heightens long-term fiscal

Heavily-indebted Canadian

consumers are facing some

headwinds. Though moderating,

the increase in household debt

continues to outpace income

growth. As the Bank of Canada

begins to raise interest rates,

as is likely by the early summer,

consumers are expected to rein

in their spending and reduce

borrowing. The rate increase

will reduce monetary stimulus to

the economy, but will also ease

pressure on the elevated Canadian

dollar. Households will benefit

from the strengthening job market,

fueled by strong exports.

■ ■ ■


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

El Salvador is heavily dependent on imported oil and food, and higher prices for basic commodities may lead labor calls for wage hikes in coming months. The government negotiated with teachers earlier this year and granted them a 10% salary increase. Inflation has remained relatively low at just 2.38% year-on-year in February, but a prolonged increase in the prices of imports could lead to wage pressures.

El Salvador

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conTenTs

preFace

meThodology

The americas

overview

risk index

argentina

Brazil

canada

chile

el salvador

mexico

united states

Venezuela

asia paciFic

europe and eurasia


aBouT sponsors

Mauricio Funes’ administration has

set a fiscal deficit target of 3.5% of

GDP and is trying to keep public

debt at less than 52% of GDP

throughout 2011.

The health of public finances looks

to be increasingly under pressure

and the Funes administration may

struggle to meet its revenue goals.

The administration has reiterated

that it plans to raise government

revenues from 14% of GDP to

17% of GDP by the end of its term

in 2014, but the government is

facing increasing resistance from

the opposition and the private

sector to any new tax reforms.

➔ El Salvador has struggled

to recover from the global financial

crisis and the downturn of the US

economy, which it depends on

for remittances, exports, and FDI.

Economic growth in 2010 barely

reached 1%, while the government

projects that the economy will

grow by 2.5% in 2011. Under the

auspices of a precautionary standby

agreement with the IMF and

continued budgetary and technical

assistance from other multilateral

financial institutions, President

Opponents of higher taxes say

the government should not raise

taxes until the economy improves.

Government officials have hinted

at potential changes to corporate

income taxes, and the introduction

of a security tax, and a property

tax, but vehement criticism looks

to have delayed these changes.

Furthermore, the government’s

reluctance to make good on

promises to improve the targeting of

subsidies—which will only increase

as legislative and municipal elections

approach in March 2012—means

that government debt may continue

to increase in the medium term.

■ ■ ■


Overview: Asia Pacific

conTenTs

preFace

meThodology

The americas

asia paciFic

overview

risk index

australia

Bangladesh

china

hong kong

india

indonesia

Japan

malaysia

new Zealand

philippines

singapore

south korea

Thailand

Vietnam

europe and eurasia


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.

■ ■ ■


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


aBouT sponsors

very positive trend

positive trend

negative trend

very negative trend


asia paciFic – risk index summary TaBle – Q2 2011




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

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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conTenTs

preFace

meThodology

The americas

asia paciFic

overview

risk index

australia

Bangladesh

china

hong kong

india

indonesia

Japan

malaysia

new Zealand

philippines

singapore

south korea

Thailand

Vietnam

europe and eurasia


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

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

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. 0

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conTenTs

preFace

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The americas

asia paciFic

overview

risk index

australia

Bangladesh

china

hong kong

india

indonesia

Japan

malaysia

new Zealand

philippines

singapore

south korea

Thailand

Vietnam

europe and eurasia


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.

■ ■ ■


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


aBouT sponsors

and French economies will likely

continue to grow slowly, even with

spending cuts. Both are likely to

see persistent and relatively high

unemployment, however. The

peripheral EU nations are also

consolidating their finances. In

Ireland, sovereign debt problems

helped force out the previous

government. Portugal also will

likely vote out the incumbent

government, and Spanish Prime

Minister Jose Luis Rodriguez

Zapatero will not seek reelection

in 2012. Though challenges

remain, the three Baltic countries

and those of central and eastern

Europe are pressing ahead with

reforms, and some are posting

encouraging growth figures.

➔ Economic recovery will

slowly gain pace in Europe as

governments rationalize their

finances. Portugal will soon join

Ireland and Greece in accepting

an EU bailout, while non-EU

countries seem to be recovering

at different speeds.

The German economy continues

to perform well, despite concerns

about the banking sector, while

the Nordic countries enjoy

steady growth and improving

labor market conditions. The UK

Russia, Turkey, and Ukraine

continue to enjoy economic

growth and political stability. Rising

commodity prices may lead to

greater inflation, but central banks

are moving to control it. Russia’s

flat tax on personal income may be

altered in coming months, which

carries the risk of heightened

tax avoidance. Turkey will hold

parliamentary elections in June;

the main uncertainty is whether the

ruling party will secure a two-thirds

majority, which would exacerbate

social and political tension. In

Ukraine, protests have already

begun over pension reform, but

the government will nevertheless

likely pass changes by July.

■ ■ ■


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


aBouT sponsors

very positive trend

positive trend

negative trend

very negative trend


europe and eurasia – risk index summary TaBle – Q2 2011




Baltics 6 7 9 4 8 X 5 6 8 4

Belgium 4 Y 6 9 6 8 6 6 8 4

Croatia 6 Y 7 8 5 8 X 4 6 7 3

Czech Republic 6 Y 7 Y 9 7 7 8 6 8 6

Denmark 6 9 8 6 9 Y 6 5 8 5

France 7 Y 8 8 6 8 4 6 8 2

Germany 5 9 8 6 8 3 6 X 9 5

Hungary 6 6 X 9 4 X 6 X 6 6 8 5

Ireland 5 7 Y 9 5 X 8 Y 7 7 9 2

Italy 6 8 Y 9 5 6 5 6 Y 7 4

Luxembourg 7 9 8 7 X 9 4 5 9 6

Netherlands 5 7 8 6 X 8 4 4 7 5

Norway 8 9 9 8 X 8 4 5 Y 8 7 XPoland 8 7 9 5 Y 6 Y 6 6 8 5

Portugal 4 7 9 4 Y 7 5 6 7 2 YRomania 6 7 7 6 X 7 7 5 7 5

Russia 5 Y 5 6 4 5 Y 4 7 6 5

Spain 7 6 Y 8 6 X 7 5 8 6 2 YSweden 6 X 8 8 7 8 4 X 6 8 7

Switzerland 9 Y 9 Y 9 7 8 6 5 9 8

Turkey 7 6 7 7 X 6 4 5 X 6 6

Ukraine 6 6 8 4 X 6 5 6 6 3

United Kingdom 9 8 Y 8 6 9 7 6 Y 9 6 Y


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

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


aBouT sponsors

Following the crisis in Japan, Germany’s government announced a three-month closure of several nuclear reactors. This will take approximately 6% of Germany’s electricity production off line. As demand rises during the summer, Germany will require greater use of existing coal and gas plants, and will increase energy imports as well. Utility companies have warned that there could be power shortages, which would disrupt business activity this summer, should some of the reactors stay off line.

Germany

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The government and the

opposition negotiated a reform

of social security benefits and a

set of minimum wages that will go

into effect on 1 May. The standard

social security rate will increase

by €5 to €364 ($521) per month

for the 4.7 million recipients,

with an additional increase of

€3 that will go into effect in

2012. The new minimum wages

apply to the security and education

sectors, as well as to temporary

workers. Unskilled temporary

workers will receive a minimum

wage of €7.60 ($10.88) per hour

in western German states and

➔ Germany’s economy

continues to expand on the back

of exports and rising domestic

demand. The economy grew

0.4% quarter-on-quarter in the

fourth quarter of 2010, and the

unemployment rate has decreased

marginally, from 6.5% in January to

6.3% in February. But the banking

sector continues to be a point of

vulnerability. The European bank

stress tests will signal the health of

Germany’s banks by June.

€6.65 ($9.52) per hour in eastern

German states—the rates that

were agreed on by employers

and trade unions under the

collective agreement.

An additional challenge is that

Germany will now be open

to workers from central and

eastern European. Many western

European EU members negotiated

restrictions on such migration in

2004 because of fears that cheaper

workers would inundate their

labor markets.

■ ■ ■


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

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


aBouT sponsors

The government recently approved several decrees with significant implications for business. For example, Italy will halt plans for resuming nuclear production and building new nuclear power plants for one year. Energy costs will remain elevated, especially considering the developments in Libya. Another decree has been drafted, which is designed to prevent foreign takeovers of strategically important Italian companies. The latter measure was taken in response to a spate of high-profile French buyouts.

Italy

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Istat, suggests that recovery in

the labor market remains slow.

Unemployment was estimated

at 8.4% at the end of February, a

decrease of 0.2 percentage points

from January but an increase of 0.1

percentage points from February

2010. The number of people

employed also decreased by 0.3

percentage points year-on-year,

suggesting that some workers

have left the labor force. Youth

unemployment remains particularly

high, at 28.1%.

A more comprehensive industrial

and labor policy could boost the

recovery, but the government is

currently focused on other issues.

The tenure of Prime Minister Silvio

➔ The Italian economy

is recovering slowly. Growth is

projected at 1.1% in 2011 by the

IMF, and inflation is estimated to

be 1.6%. The government deficit

is projected at 4.3% of GDP as the

current administration continues to

tighten fiscal policy. Nevertheless,

significant challenges remain.

The government debt burden is

elevated, at 119% of GDP, and the

IMF projects 2011 unemployment

at 8.9%.

The most recent data from

the national statistics agency,

Berlusconi’s center-right government

seems stronger now than a few

months ago. After surviving several

confidence votes precipitated by

rival Gianfranco Fini, Berlusconi has

secured a narrow but workable lower

house majority. The government

is contemplating some changes

to the cabinet in order to appease

the newcomers to its parliamentary

bloc. The cabinet may also move

to extend the deadline for enacting

fiscal federalism to November,

ensuring the support of the

Northern League—a crucial coalition

partner. Berlusconi’s legal battles,

though embarrassing, are unlikely to

threaten stability in the near term.

■ ■ ■


Overview:Middle East and Africa

conTenTs

preFace

meThodology

The americas

asia paciFic

europe and eurasia


overview

risk index

algeria

egypt

israel

kuwait

morocco

nigeria

Qatar

saudi arabia

south africa

united arab emirates

aBouT sponsors

the region and fatally weakening

regimes in Libya and Yemen, while

driving unprecedented unrest in

Bahrain, Jordan, and Syria. But

as the Arab countries emerge

from a seemingly unifying

historical moment, regimes in

the Middle East will become

more politically diverse in the

short and medium term.

The Algerian regime has so far

avoided the fate of its eastern

neighbors, despite extensive

rioting in January. Morocco’s

relatively popular king has

attempted to get ahead of unrest

by announcing potentially wide-

reaching reforms. Saudi Arabia and

the rest of the Gulf Cooperation

Council (GCC) countries, with

the exception of Bahrain, have

➔ The Middle East and North

Africa dominated the headlines

in the first quarter of 2011. The

self-immolation of a young street

vendor set off a wave of protests

that led to the fall of Tunisian

President Zine el Abidine Ben Ali

in January and sent reverberations

across the region. On 11 February,

extensive demonstrations inspired

by Tunisia’s “Jasmine Revolution”

brought down Egypt’s longtime

president, Hosni Mubarak.

Mubarak’s fall was a catalyst

emboldening protesters across

also seen limited unrest. They

are currently in better shape

politically than many of their

non-oil-producing counterparts.

Nevertheless, regional unrest

will have implications for policy,

politics, and labor markets across

the Middle East and North Africa.

Elsewhere on the African continent,

Nigeria is poised for strong

GDP growth in 2011, but heavy

government spending makes

its medium-term fiscal outlook

less certain. South Africa will also

experience higher GDP growth

but remains vulnerable to rising

international food and oil prices.

Unemployment and public sector

wages will remain key political

challenges in both countries.

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conTenTs

preFace

meThodology

The americas

asia paciFic

europe and eurasia


overview

risk index

algeria

egypt

israel

kenya

kuwait

morocco

Qatar

saudi arabia

south africa


aBouT sponsors

very positive trend

positive trend

negative trend

very negative trend


middle easT and aFrica – risk index summary TaBle – Q2 2011




Algeria 4 Y 3 3 3 X 3 2 5 5 1 Y

Egypt 3 Y 5 8 Y 3 5 Y 3 4 4 2

Israel 7 6 6 Y 7 7 Y 6 6 8 7

Kuwait 5 Y 5 Y 7 5 4 8 Y 4 8 7

Morocco 6 Y 5 8 5 Y 6 3 4 3 5 Y

Nigeria 4 Y 2 Y 3 Y 4 4 4 5 2 3

Qatar 7 7 9 8 X 6 X 6 4 8 6

Saudi Arabia 6 Y 5 7 6 X 5 6 4 5 5 Y

South Africa 6 Y 3 6 6 X 7 4 7 4 2

United Arab Emirates 7 8 7 7 X 6 X 6 5 8 8


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

After years of persecution under Mubarak, the Muslim Brotherhood has assumed a prominent public role and formed a relationship with the military. The military selected some pro-Brotherhood jurists for the committee that is crafting constitutional amendments. In turn, the Brotherhood mobilized its supporters in favor of the amendments, which will allow the military a more rapid departure from the political spotlight. But their understanding is not likely a long-term partnership.

Egypt

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israel

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aBouT sponsors

the 6% expected in 2011 prior

to the political turmoil. However,

Egypt will receive financial

assistance from the US, Europe, and

Gulf states including Saudi Arabia

and the United Arab Emirates.

Egypt is likely on a very bumpy

path to limited democracy with the

military maintaining a dominant

political role. Political tension will

rise considerably in the coming

months, particularly in the lead-

up to September parliamentary

elections. Frictions will be driven

by worsening relations between

the military and the activists—now

the two most powerful actors in

➔ Largely as a result of the

Egyptian uprising, which began on

25 January, the country’s economy

will remain in a precarious position

in the short term. Tourism revenue

is down and remittances will be

hurt by the return of hundreds of

thousands of Egyptian laborers

from neighboring Libya, which is

also experiencing political turmoil.

In addition, foreign investment

will soften considerably. Egypt’s

economy will likely grow by less

than 3% in 2011—as opposed to

the country. The military does

not want dramatic changes, while

the activists, whose protests in

large part drove former president

Mubarak from power, want a

complete break with the former era.

After some waffling, the military

will likely give in to many remaining

activist demands, including that

senior figures in the Mubarak

regime be held accountable for

misdeeds. In the less likely scenario

that the military does not give in to

most activist demands, the chances

of instability will rise.

■ ■ ■


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

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low risk

high risk

Under heavy pressure from unions and labor-oriented political parties, including the threat of strikes, President Jonathan approved a large hike in the minimum wage in March. The 64% increase, to about $116 per month, is backdated to 1 January 2011. The raise is disproportionately above the annualized inflation rate (at about 11%), but unions argue, with some justification, that the minimum wage had fallen far behind per capita GDP growth in the last decade.

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algeria

egypt

israel

kuwait

morocco

nigeria

Qatar

saudi arabia

south africa


aBouT sponsors

Nigeria billion ceiling set by

President Goodluck Jonathan.

Despite government promises to

cut fuel subsidies and enact a new

utilities tariff, the budget approval

signals continued spending

growth in Nigeria.

As long as fiscal policy remains

expansionary, the Central Bank

of Nigeria (CBN) will struggle

to maintain monetary and price

stability. But CBN governor Lamido

Sanusi, a technocrat and ally of

Aganga, has increased benchmark

interest rates by one percentage

point to 7.5% as a preemptive

move to counter election-related

➔ Nigeria’s economy is

expected to expand by 7.1% this

year. Challenges include spending

and revenue management. Political

tension will persist after elections—

governors, members of parliament,

and the president will be chosen

on three consecutive weekends

from 9–26 April. Already, Minister

of Finance Olusegun Aganga has

denounced as “unimplementable”

the $31.8 billion budget approved

by the senate in defiance of the $30

spending. Although the naira

is under pressure because of

speculation about the likelihood of

political violence, it remains highly

unlikely that it will be devalued in

the short to medium term. Sanusi

will continue to reject IMF calls

for devaluation because he does

not believe that a weaker naira

will counteract Nigeria’s poor

economic policies, either by

improving the country’s balance

of payment crisis, bolstering

foreign exchange reserves, or

strengthening key growth sectors

such as agriculture and textiles.

■ ■ ■


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

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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,

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

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

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Q2 2011 Global Market Brief & Labor Risk Index

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Transcript of Q2 2011 Global Market Brief & Labor Risk Index