beyondbrics

While the economic debate in much of the developed world is dominated by unemployment worries, east Asia continues to enjoy virtually full employment.

Even though regional output growth is slowing fast, there is no sign of an imminent increase in unemploment. Why?

According to RBS, a lot of it is down to the Chinese tourist.  Buoyed by a steep rise in intra-regional tourism – especially from China -  job creation in services in east Asia is booming.  Even if the factories are a little quiet, the hotels, bars and restaurants are not.

Sanjay Mathur, an analyst at RBS, said in a note on Wednesday:

In all countries, we estimate that unemployment rates to be below their long term trend. And this decline is not associated with falling labour participation rates but rather new job creation. Labour participation rates have either remained stable or even risen marginally. The second feature is that job vacancies relative to workers available is high further validating the tightness of regional labour markets.

Singapore is a case in point:

Source: RBS

A lot of those jobs have come from a rapid recent rise in tourism, particularly from China. Chinese nationals are defying the global economic slowdown: some 2.2m enjoyed their National Day vacation abroad in October 2011. What’s more, they spent close to $1,000 each – up 25 per cent from the previous year.

In Hong Kong and Singapore, tourist arrivals in 2011 were 13m and 40m respectively – both the highest on record. In Taiwan, the number has doubled over the past five years, and is likely to be boosted further by last year’s removal of rules that disallowed Chinese tourists travelling alone.

And job creation shows no sign of stopping in east Asia – though it may slow – just yet:

Source: RBS

This is all good news, but there is a catch. The shortage of space capacity in the labour market means that wages are growing fast - Mathur notes than in Hong Knng, real wage growth has recently exceeded GDP growth. While this might seem good for workers, it creates “sticky” inflation - that is, inflation that is reluctant to drop even if other macroeconomic conditions suggest that it should.

So policy makers are restricted when it comes to easing interest rates, fearful of stoking inflation. ”The scope to cut policy rates is either nonexistent or limited to 25bp-50bp,” concluded Mathur. Which could pose a big challenge if east Asian growth continues to stutter.

Related reading:
Indonesia GDP hits 6.5% in fourth quarter, FT
China: postcards from Phuket, beyondbrics
Taiwan set for more Chinese tourists, beyondbrics