The Labor Outlook For Asia-Pacific

15 AUGUST 2012

Growth prospects will moderate across Asia and the Pacific region over the coming months as the Chinese economy cools and demand for the region’s exports levels off due to weakness in the European and US economies.It will therefore be important to monitor the ability and willingness of governments throughout the Asia-Pacific region to address weaker growth prospects through fiscal and monetary policy adjustments.

In this regard, different countries will exhibit varying priorities and capacities. In China, renewed stimulus efforts appear unlikely given that authorities in Beijing remain preoccupied with the negative repercussions of easy credit policies and unproductive investments, and are not fixated on maintaining the country’s 8% growth rate.

Southeast Asia in general will experience decent growth,given that governments throughout the region can still prop up their economies through higher spending. And local firms, which for the most part are not facing severe debt burdens, will continue to invest in new opportunities domestically and throughout the Asia-Pacific region. That said, South Asia looks less hopeful. In particular, Indian policymakers’ ability to stimulate growth is severely constrained.

In Australia and New Zealand, the goal of bringing state budgets to surplus will limit officials’ willingness to boost growth via major fiscal policy moves. There is room, however, for central banks to lower interest rates and thereby fuel business investment and consumer spending. Even though they are not immune to external risks, Australia and New Zealand should see relatively stable growth of 2%–3% through this year and next.

The region should largely remain politically stable over the coming months, with one notable exception: Thailand. China is also set to undergo its once-a-decade leadership turnover during the Communist Party plenum in October, although this is set to be a smooth transition.

While the economic outlook for the region is still largely positive, labor markets and policy will remain in flux throughout the region as workers demand greater protections, major economies seek to move up the value chain, and frontier markets work to bolster competitiveness.