Economists: Job market recovery expected to be slow as Covid-19 persists

KUALA LUMPUR (Aug 9): The rise in Malaysia’s unemployment rate to 4.8% in June was largely expected, said economists, given the enforcement of the Full Movement Control Order (FMCO) during the month.

The figure was 0.3 percentage points higher than the 4.5% reported for May, which also marks its first increase after four consecutive months of declines.

UOB Malaysia senior economist Julia Goh Mei Ling noted that the number of unemployed people posted the biggest increase in 13 months by 40,600 or 5.6% month-on-month to 768,700, while the labour force participation rate fell to an 11-month low of 68.3%.

She noted that total employment fell significantly to 15.3 million persons, after hitting an all-time high of 15.37 million persons in May.

This was amid a broad-based decline, with the services sector posting its first fall in 12 months, while the manufacturing sector lost hiring momentum for the first time in eight months, recording its largest employment loss since April 2020.

“We continue to expect a slower recovery in the labour market as two main economic hubs of Malaysia — Klang Valley and Johor — remain under a stricter lockdown since June 1.

“Stubbornly high Covid-19 infection rates due to more contagious virus variants and a strained healthcare system will likely lead to a more cautious easing of pandemic lockdown over the next three months, despite an accelerating vaccination rate,” said Goh.

UOB maintained its 4.5% year-end unemployment rate forecast for 2021, amid ongoing government policy support and timely review of standard operating procedures (SOPs) for businesses.

Similarly, MIDF Research said the higher unemployment rate was due to the stringent nationwide lockdown during the month.

While the jobless rate increased on a month-on-month basis, the research house noted that the number of employed persons maintained a positive growth of 2.1% year-on-year.

It noted that job vacancies have been declining since May amid strong labour demand, and expects a sharper decline in job vacancies in the middle of the year amid the extension of the full lockdown, which commenced at the start of June.

The closure of non-essential sectors will contribute to weaker labour demand, as well as the interstate travel ban, which has affected labour demand for the tourism-related sectors.

“Moving forward, we can expect the national unemployment rate to remain elevated, as the lockdown had been extended beyond June 28. 

“The prolonged lockdowns pose a threat to the recovery in the job market in the short term, especially for the retail industry which bore the brunt of the restrictions with continued revenue loss due to weaker consumer spending. Nevertheless, through the National Recovery Plan, reopening of businesses in several states would limit the rise in jobless rate,” the research house said in a note.

It said the encouraging progress seen in terms of vaccination will increase the likelihood of reaching herd immunity, pointing towards a possible reopening of the economy.

MIDF maintained its projection for the labour market to average at 4.3% in 2021, slightly lower than 4.5% in 2020.

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