KUALA LUMPUR (March 8): Malaysia's unemployment rate rose to a seven-month high of 4.9% in January, which economists regard as a temporary weakness in the labour market due to the imposition of the second Movement Control Order or MCO 2.0, and that the job situation is expected to improve in the months ahead as economic activity picks up.
"With new Covid-19 cases on a declining trend, we foresee the labour market to recover in the coming months as more restrictions have been gradually eased, allowing more businesses to reopen and resume operations," MIDF Research wrote in a report today.
With almost all economic activities allowed to resume and the global economy improving, UOB Malaysia said the labour market should regain momentum from the second quarter of 2021 onwards.
The Department of Statistics Malaysia said unemployment rate ticked up to 4.9% in January from 4.8% in December, after the imposition of MCO 2.0 on Jan 13, which saw the number of unemployed persons rise to 782,500 from 772,900.
"Despite the higher unemployment rate, labour conditions showed some signs of recovery amid higher labour force participation rate, and a larger increase in number of employed persons relative to unemployed suggesting that businesses are starting to rehire," UOB senior economist Julia Goh and economist Loke Siew Ting wrote in a separate report.
Employment improved for the second straight month by rising 0.1% or 21,900 from the previous month to 15.24 million in January, mainly due to hiring in the services and manufacturing sectors.
Malaysia's labour force as at January was at 16.02 million persons, up 0.2% or 31,500 from 15.99 million persons in December. Labour force participation rate inched up slightly to 68.5% from 68.4% previously.
"This indicates that people were more encouraged to look for jobs during the month, as the size of the labour force expanded from previous month and reached 16 million for the first time on record. As a result, the larger labour force limited the increase in the jobless rate," said MIDF.
This also shows that the impact from MCO 2.0 seems to be limited, as suggested by more people entering the job market and as total employment increased from previous months and reached the highest level since March 2020, said MIDF.
Although demand for labour remained high in December, the tighter restrictions due to the MCO 2.0 in January and February will temporarily affect labour demand in the near term, added MIDF, but the situation is expected to improve particularly from March as restrictions from the movement control have been relaxed.
"In 2021, we expect labour market recovery to continue this year, benefitting from the government initiatives to support employment growth, such as MySTEP (short term employment programme) and the extension of Wage Subsidy Programme, and the expected rebound in economic growth.
"However, looking at the temporary weakness in the early part of 2021, and the still sluggish recovery in the job market, we now predict the unemployment rate to be around 4.3% in 2021, from 4.5% in 2020," said MIDF.
UOB, on the other hand, projected the unemployment rate to ease to 4% by end-2021.