Labor productivity increased 3.0% in 1Q18

• Labor productivity increased by a slower 3.0% in 1Q18
• Total employment grew marginally at 2.3% yoy in 1Q18
• Agriculture sector’s labor productivity dropped 1.4% yoy
• All sectors posted positive growth in employment except for mining sector
• Malaysia continues to record strong labor productivity

Malaysia’s labor productivity grew 3.0% yoy in 1Q18 to RM80,440 from 3.8% in 4Q17. It has decelerated for three consecutive quarters. Nevertheless, the total employment inched up to 2.3% yoy in the 1Q18 after being stagnant at 2.0% for two months in row.

Among all sector, mining sector recorded the highest labor productivity growth which stood at 8.3% yoy and followed by services sector, 4.6%. In contrast, agriculture sector declined 1.4% yoy in 1Q18 after increased significantly at 4.8% in the previous quarter. The productivity was dragged down by fishing and forestry and logging which continued to decline in 1Q18; -17.4% yoy and -31.3% yoy respectively.

In terms of employment, services sector attributed the highest share over total employment in Malaysia which holds at 61.1%. The second largest sector t is manufacturing, 16.9% and followed by agriculture, 12.5%.

All sectors posted positive growth of employment in 1Q18 except for mining sector which continued to decline by 7.6% yoy, following a 5.5% drop in the preceding quarter. Whereas, the employment for agriculture and construction sector increased by 4.2% yoy in 1Q18.

Malaysia continues to record strong labor productivity

Malaysia’s labour productivity grew 3.0% in 1Q18 after registering 3.8% growth in 4Q17. During the first three months of the year, Malaysia’s GDP expanded 5.4% (4Q17: 5.9%) while employment grew 2.3%. Productivity growth has been steady in Malaysia but has fluctuated in the past few years, reflecting both a moderation in sales and continued employment creation. Malaysia has enjoyed a period of solid growth mainly led by factor accumulation.

Labour productivity is arguably one of the most important economic indicators as it measures how much economic output each worker can produce over a period of time. For a country, improvement in labor productivity means more goods and services can be produced with less workers and this underpins the potential for economic growth. For workers, increased productivity is the most important source of higher income and improvement in the standard of living. Over the long-term, sustained economic development hinges on the continued growth of labor productivity.

Moving ahead, Malaysia’s economy is anticipated to sustain its growth momentum in line with the expansion in the global economy. Productivity is highly correlated with GDP and productivity growth is expected to benefit from the positive GDP growth in Malaysia, estimated at 5.3% in 2018. This should have a positive impact on productivity which we expect will grow by 3% to 4% in 2018. This is supported by improvements in global growth that will enhance the country’s trade, investment and income inflows as well as strong increases in domestic demand. Strong domestic private consumption is expected to feature significantly in the anticipated positive performance.

Source: BIMB Securities Research - 28 May 2018