PETALING JAYA: Malaysia’s unemployment rate is projected to rise further to 5.5%-6.5% (up to 1 million persons) in Q2-Q3 due to the repercussions of the Covid-19 pandemic before stabilising towards year-end, according to the Socio-Economic Research Centre (SERC).
SERC’s executive director, Lee Heng Guie (pix), said the unemployment rate spiked to 5% (778,800 persons) in April, the highest since 1990. A severe hit to the labour market would dent consumer spending, and the steep decline in activity comes with a catastrophic hit to labour market conditions, especially during the movement control order (MCO) period.
“The unemployment rate would likely peak going into Q3. The labour market underpins the consumers’ sentiment and consumers’ confidence to spend. To ensure consumers will continue to spend confidently or improve the sentiment, we have to see some stability in the unemployment rate,“ he said at the SERC Quarterly Economy Tracker (Q2’20) online media briefing and press conference today.
Lee cautioned that a rebound cannot truly get under way until people are able to go back to work and the jobless rate recedes from a record high.
The Employment Insurance System reported 53,952 employment loss in January to July 4, 2020, with 23% in manufacturing sector, 15% in accommodation and food & beverages industry and 14% in wholesale & retail services. Professionals, managers, executives and technicians made up 58% of total employment loss while workers’ earning monthly wage below RM3,000 made up 62% of the total.
Lee said 2.5 million employees have received wage subsidy and about 200,000 employees were placed under the Employment Retention Program, receiving a six-month wage subsidy on no pay leave, which could signal the potential loss of employment.
He said job creation will be slow to come at this juncture, noting that it is important to preserve income and jobs.
“We believe some form of financial assistance will continue in the upcoming Budget to keep consumption growth. The speed of job creation is crucial to sustain the momentum. Next year we hope to see a stabilisation of the unemployment rate and new sectors with demand for workers.”
A year-to-date reduction of 125bps in the Overnight Policy Rate as well as the RM295 billion Prihatin and Penjana economic stimulus packages (fiscal, financial, and credit measures) have helped to limit the economic damage of the Covid-19 and lift financial sentiment, which in turn supports a gradual economic recovery.
Overall, SERC estimates Malaysia’s 2020 gross domestic product (GDP) to decline by 3% and will recover by 5.5% in 2021, noting that the deepest shock to economic activity will be concentrated in Q2.
“We expect the large economic contraction estimated at 11.5% year-on-year to hit the peak in Q2 (+0.7% in Q1), reflecting the full impact of MCO in April and a gradual reopening in May-June. A smaller magnitude of GDP decline (-3.4%) is expected in Q3 before reverting to +2.2% in Q4,“ said Lee.
He said downside risks to Malaysia’s economic growth remain in 2020-2021, given the global recession in 2020 and slow recovery in 2021-2022, volatility risk in global financial markets, moderating commodity prices, softening crude oil prices, weakening domestic and business conditions, volatility risk in stock market and weak ringgit, as well as the US-China trade tensions.
