• Improvement in unemployment rate reflects the country’s gradual economic recovery as business activity resumed.
• We anticipate the unemployment rate to improve gradually in the months ahead in line with the pickup in economic activity under the RMCO phase and supported by Prihatin and Penjana stimulus measures.
• Nevertheless, there are still some concern of possible slight uptrend in unemployment rate once the loan moratorium ends on 30st September 2020

Number of Unemployed Persons Fell by 28.2k in July

Malaysia’s unemployment rate improved by another 0.2 percentage points from 4.9% in June to 4.7% in July (a high of 5.3% in May), its second straight month of improvement after four consecutive months of increases. The drop in unemployment rate reflects the country’s gradual economic recovery as business activity resumed. In July, the number of unemployed persons fell for the second straight month by 28.2k (from a decline of 52.9k in June). The cumulative number of unemployed persons fell to 745.1k in July from 773.2k in June. The labour force rose by 55k to 15.82 million persons (+49.5k in June), increasing for the third consecutive month. Meanwhile, the labour force participation rate (LFPR), which is the ratio of labour force to working age population was unchanged at 68.1% in July (68.1% in June). Likewise, the working population rose for the second straight month by 83.2k to 15.07mn in July from 14.99mn in June, where most sectors had registered a rise in employed persons since June as the Recovery Movement Control Order (RMCO) took effect. Notably, it was guided that the services sector saw a significant increase in employed persons, mainly in accommodation, food and beverages and transport and storage activities. In addition, there was also a slight rise in employed persons in art, entertainment and recreational activities.

We anticipate the country’s unemployment rate to improve gradually in the months ahead in line with the pickup in economic activity under the RMCO phase. Some economic indicators, such as number of new business registrations, continued to increase since May 2020, from 10.9k to 38.3k in August 2020. Meanwhile, SOCSO’s loss of employment (LOE) or retrenchment data continues to ease in August to 9.3k compared to 16.7k in July, its lowest level since April 2020. Similarly, the number of active vacancies under MYFutureJobs has remained steady at 50.2k in August from 54.4k in July, mainly in manufacturing, wholesale and retail, accommodation and support service. We expect the labour market to be likely supported by ongoing initiatives under the Prihatin and Penjana stimulus packages, such as the wage subsidy program, which was previously extended by another three months to 31st. December 2020 and the Hiring Incentive Programme and Training Assistance. However, in 4Q20, there are still some concern of possible slight uptrend in unemployment rate once the loan moratorium ends on 30st September 2020. Businesses will have to resume servicing their loans. Besides that, as borders remain closed, tourism-related jobs especially those that rely on foreign tourists will continue to be negatively impact. Similarly, some businesses that are not allowed to operate at full capacity in order to comply with standard operating procedures may also refrain from increasing hiring in an effort to lower costs. We expect the country’s unemployment rate to average around 4.5-5.0% for 2020 (3.3% in 2019).

Source: Affin Hwang Research - 14 Sept 2020