• Number of unemployed persons fell for the third straight month but at a slower pace of 3.5k while labour force rose by 76.6k in August
• In the coming months, the country’s unemployment rate may continue to improve gradually in line with the pickup in economic activity
• We expect the country’s unemployment rate to average around 4.5-5.0% for 2020 (3.3% in 2019)

Number of Unemployed Persons Fell by 3.5k in August

Malaysia’s unemployment rate was unchanged at 4.7% August, the same rate of increase compared to previous month, following two consecutive months of improvement (a high of 5.3% in May). In August, the number of unemployed persons fell for the third straight month but at a slower pace of 3.5k (from a decline of 28.1k in July). The cumulative number of unemployed persons fell to 741.6k in August from 745.1k in July. Meanwhile, the labour force rose by 76.6k to 15.90 million persons (+55k in July), increasing for the fourth consecutive month. The labour force participation rate (LFPR), which is the ratio of labour force to working age population rose by 0.3 percentage points to 68.4% in August (68.1% in July), its highest level since March 2020. Likewise, the working population also increased for the third straight month by 80.1k to 15.15mn in August from 15.07mn in July. By sector, it was guided that the services sector saw a further increase in employment particularly in wholesale and retail trade, accommodation and food and beverages as well as information and communication activities.

In the coming months, gradual pickup in economic activity as reflected in some high frequency indicators such as stable labour market conditions, household spending and trade activity will likely continue into 4Q20. For instance, number of new business registrations continued to increase from a low of 10.9k in May 2020 to 42.2k in September 2020. Meanwhile, SOCSO’s loss of employment (LOE) or retrenchment data has fallen for three consecutive months in September to 7.39k from 9.26k in August, its lowest level since April 2020. Similarly, under the Penjana Hiring Incentive Program in August, the number of job placements rose to 21,174 compared to 14,085 placements in July. Hence, we believe the country’s labour market conditions will also likely be supported by other ongoing initiatives under the Prihatin and Penjana stimulus packages. Furthermore, under the KITA Prihatin stimulus package, the Targeted Wage Subsidy Programme 2.0 to assist those that are still impacted by the RMCO will help to retain jobs. However, there are still some concern of a possible slight uptrend in unemployment rate following the end of loan moratorium on 30st September 2020. Besides that, as borders remain closed, tourism-related jobs especially those that rely on foreign tourists will continue to be negatively impacted. The recent announcement of enforcement of Conditional MCO (CMCO) for Selangor, KL and Sabah could also be a downside risk for the labour market. Selangor, KL and Sabah account for about 41.4% of the country’s total employment and about 50% of Malaysia’s GDP. However, as most essential services and business activities are allowed to operate, with restriction mainly on non-essential services, the negative impact on domestic demand may not be as sharp as in 2Q20. As a result, we maintain our projection for the country’s unemployment rate to average around 4.5-5.0% for 2020 (3.3% in 2019).

Source: Affin Hwang Research - 14 Oct 2020