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Economy

Asia seen leading global wage growth in 2018

Raises solid in India, Vietnam, China, but meager in Japan, US, Europe -- survey

People walk at the financial district of Pudong in Shanghai.   © Reuters

TOKYO -- Asian workers are expected to enjoy the highest real wage growth in the world in 2018, thanks to solid growth and changes in the region's economic structure, while their counterparts in Japan and the Western advanced economies will see wage stagnation amid budding inflation.

Inflation-adjusted real wages are seen growing 2.8% in Asia this year, compared with an increase of just 1.5% worldwide, according to a recent annual survey conducted by human resources company Korn Ferry, which tracks 20 million workers in 25,000 corporations.

But Asian workers shouldn't pop open the champagne just yet. The increase represents a slowdown from 4.3% a year ago, as economic growth in the region is expected to ease from last year's strong pace, amid expectations of higher interest rates and slower export growth. Inflation is also returning as a potential drag on consumer purchasing power.

Wage leaders

Leading wage growth in Asia are India, Vietnam and Thailand while Japan sits at the bottom of the league.

In India, real wages are expected to grow 4.7%, making the country the best performer for 2018. The South Asian nation continues to recover from major disruptions caused by Prime Minister Narendra Modi's removal of high denomination notes from circulation, in what is known as "demonetization," in 2016.

Workers in Vietnam are expected to see similar increases, as private consumption has emerged as an engine of growth along with manufacturing exports, even though concern remains about the country's rising private debt and signs of a property market bubble, said HSBC.  

Thai workers are also in for a solid raise as the country continues to benefit from its position as a regional hub of manufacturing, amid continuing global growth.

In China, real wages are expected to grow 4.2%, up from 4.0%. Economists at Moody's Economy.com predict that China will maintain a proactive fiscal policy in 2018 as it undertakes supply-side reforms, such as dealing with overcapacity in state-owned enterprises and opening up to greater competition, while containing financial sector risks from high levels of debt. 

In Japan, real wage growth is expected to slow to 1.6% from 2.1%. Companies are expected to offer raises of about 2% for the fifth straight year this year, responding to Prime Minister Shinzo Abe's push for higher pay, but budding inflationary pressure is likely to challenge Abe's hopes for faster growth in real terms. 

Inflationary pressure

Robust economic expansion is adding to inflationary pressure in high-wage-growth countries in Southeast Asia and China, eroding the gains in nominal wages, Korn Ferry says. Standard Chartered Bank also forecasts inflation will rise further in 2018, "primarily on stronger domestic activity and still-strong commodities prices."

Capital Economics downplays the risk, saying, "Inflation is likely to remain contained." It predicts oil prices will ease, while interest rate rises and slower export growth will put the brakes on the region's growth.

One thing is for sure -- advanced economies won't see wage increases large enough to offset budding inflation. Korn Ferry projects wage growth of just 0.4% for Australia, 0.8% for Germany and minus 0.5% for the U.K.

Many factors are in play for such wage stagnation in the advanced economies. Reduced bargaining power of workers due to increases in non-unionized part-time workers and automation, as well as expectations among managers for low economic growth, are among the reasons for wage stagnation in the advanced economies, the International Monetary Fund said.

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