Significant industrial slack during lockdown created notable labour market weakness

Published on 17 Aug 2020.

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The nationwide cessation of non-essential business activities during the strict lockdown periods of March and April triggered swift and sudden job losses. As the Movement Control Order was gradually relaxed from May, the employment trend stabilised as businesses reopened and some replacement hiring took place. We expect the unemployment rate in 2020 to reach 4.0%-4.5%, higher than the baseline of 3.0%-3.5% in normal times.

Sector-wise, the tourism-related and manufacturing sectors show a disproportionate number of redundancies compared to the overall workforce. The key economic centres of Kuala Lumpur, Selangor and Pulau Pinang also recorded higher job losses relative to the national worker distribution. These states could also face setbacks from the dearth of tourism activities and business travellers amid global lockdowns.

The manufacturing sector rebounded strongly in June, with essential and non-essential manufacturing capacity utilisation standing at 83% and 70%, respectively. The services sector was still underperforming, however, with the overall retail services capacity at 62% in June. Meanwhile, the tourism & hospitality and construction sectors continue to struggle, registering 40% and circa 65% capacity utilisation rates by our estimates. The recovery of Malaysia’s non-essential and export-oriented sectors is instrumental to reducing slack in the labour market and hence yielding more employment opportunities. This will be crucial in the next few months as various incentives for businesses and households approach their expiry in 4Q 2020. 

Without strong job prospects, we expect consumer spending on necessities to stay relatively flat this year, with a marked decline in discretionary expenditure. Private consumption is therefore envisaged to post a contraction of 2.1% in 2020 – substantially below the 7.0% trend growth of previous years. 


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Kristina Fong
(603) 3385 2511

Media contact
Padthma Subbiah
(603) 3385 2577


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Publication Date Published Category
Economic Update 2020 17-Aug-2020 Economic Outlooks View PDF