• Malaysia’s total labour force jumped further in July

• Unemployment rate dropped to 3.7% in July versus 3.8% in June

• Participation rate also improved

• The month’s unemployment rate already surpassed BNM’s full year target

OVERVIEW

Malaysia’s unemployment rate dropped further in July driven by strong job creation which reached above 600k against a year ago. That said, July’s unemployment rate of 3.7% is an improvement against 3.8% in June and the last 12-month high of 4.8% in July 2021. This is also a marked turnaround against the peak of 5.3% in May 2020 which took place during the strongest headwinds of COVID-19. This is also ahead of BNM’s 2022 projection of 4.0%. Of note, Malaysia’s unemployment rate has been dropping steadily since the full economic openings in April, a trend consistent with global and regional peers. This also highlights the effectiveness of targeted approach by the government amid various job creation programmes that were rolled out since early of the year consistent with the announcement that contained in Budget 2022 (SOCSO’s Jamin Kerja; GLiCs and GLCs).

Labour Force: Malaysia’s total labour force improved further in July following a YoY increase of 3.2% thanks to full economic openings post COVID-19 pandemic and an increase in minimum wage which was implemented since May. This is expected rise further in line with the reopening of international borders and the return of foreign labour following the government’s resolve to address the labour shortage issue. Note that labour shortage has been a bane for several sectors including services, manufacturing and plantation which reached its pinnacle during the peak of COVID-19 in 2020 and 2021.

Employment. Job creation remained inspiring in July following the addition of 684k or a 4.4% YoY jump, an improvement against June’s (+629k; +4.2% YoY) and a sharp rebound against a year ago (July 2021: 221k; +1.5% YoY)). Cumulative job creation YTD is also a leap against the same period a year ago which may remain steady given minimal interruption from COVID-19 and full economic openings around the world. Unemployment rate is forecast to reduce further in the near term, likely to reach the pre COVID-19 level (April 2020: 3.3%) by end of the year and therefore, a full employment condition for the country.

Unemployed. A steady job creation pushed the number of unemployed workers lower for the month which tanked by 157.5k YoY to 620.7k or a YoY decline of 20.2%, the most for the year. This is an improvement against the year’s high of 680.4k in January and a marked improvement against a year ago (July 2021: 778.2k). This is expected to drop steadily in line with full recovery in affected sector like services particularly leisure, accommodations and hospitality, tourism, the sub-sectors that borne the most brunt of the pandemic. It is also poised to reach the pre COVID level of 525k in February 2020, projected to take place in 1-2 quarters.

Participation Rate. Labour participation rate remained solid for the month after reaching 69.6% in July, a steady rise against 68.3% from a year ago, signaling that the Malaysian population have been healing well from the pandemic and therefore, a rebound in number of economically active population. This is among the highest in the world amid Malaysia that only trails the Sweden (July 2022: 74.8%), Netherlands (July 2022: 74.8%) and Finland (July 2022: 69.8%). and US (July 2022: 70.2%), if not the highest in ASEAN (Philippines July 2022: 65.2%). Unemployment by Age Group.

Unemployment rate for youth by age group also improved, though at a snail pace, including for the 15-24 years old (July 2022: 12.1%; July 2020: 13.7%) and 15-30 (July 2022: 7.4%; July 2021: 8.5%). Nonetheless, the rate of drop is seen to be faster for the latter (age 15-24: -7.9k; 15-30 age: -44k).

OUTLOOK

The expected improvement in wages, job creation and full economic openings will spur the labour force in Malaysia and therefore, a drop in unemployment rate. This is credited to holistic government strategy to revive and boost the economy in line with vaccine-induced strategy and massive fiscal spending (8 stimulus packages, RM530bn; 39.0% of GDP). The employment market received the biggest push thanks to the government’s bold decision to reopen the international borders and the economy since April. The expected return of foreign workers in big numbers from 4Q onwards, on the other hand, especially for services, manufacturing and agriculture sectors, is expected to drive the labor force higher and a corresponding drop in unemployment rate. This highlights Malaysia’s strong fundamentals amid the country that is fast approaching a full employment condition, a coveted position that is expected to reach by year end, if not earlier.

Source: BIMB Securities Research - 9 Sept 2022