KUALA LUMPUR: Last year was a challenging year for the labour market. On the one hand, there were heightened job losses and on the other, job creation was scarce, no thanks to the pandemic-induced economic conditions.
However, the labour market is expected to improve this year buoyed by initiatives under Budget 2021 and improved sentiment with the rollout of the vaccination programme.
According to PublicInvest Research, one of the important drivers for the labour market will come from the public-private initiatives to create 160,000 new jobs this year which will be achieved, among others, through skill enhancement. This is part of the government’s initiative under Budget 2021 to create 500,000 new jobs which will also include the creation of 50,000 contract job opportunities within the public sector and government-linked companies.
“The government is committed to spending RM7bil through initiatives like skills development, hiring and retraining programmes which will be key to reach its job creation goal for the year, ” it said.
However, PublicInvest noted that some initiatives, such as the recent MyDigital’s goal to create 500,000 new jobs by 2025, may not do much for the market this year as a significant portion of the government’s budget will go towards Covid-19 related expenditure first.
A combination of factors will affect the unemployment rate this year, which PublicInvest estimates will range between 3.5% and 4%.
The unemployment rate ended at 4.8% in December 2020.
While Budget 2021 will help moderate the labour market, the retrenchment rate may remain elevated in the first half of this year as the wage subsidy expires in 1Q21 and recovery in contact-sensitive industries such as hospitality and tourism is only expected to take place in the second half of the year, if not later.
“Risks to our projection may come from slower-than-expected roll-out of Budget 2021 initiatives, which may affect the new job creation target. The slower-than-expected recovery in contact-sensitive industries is also a concern.
“The larger-than-expected knock-on effect from the expiry of the wage subsidy could also put pressure on the unemployment rate, ” the research unit said.
Another factor to look out for will be the higher-than-usual increase in total labor force this year. Last year saw a slower-than-expected increase in total labour force which reached 15.9 million, an addition of only 101,000 for the year compared to 338,000 on average for the last three years (2017-2019).
This year may see a larger-than-usual increase in the total labour force by 575,000 to 16.5 million, which PublicInvest opined would be one of the driving factors that will push the unemployment rate lower in 2021.
The Business Conditions Index (BCI) is also expected to see a gradual improvement with the Covid-19 vaccination programme expected to cover up to 150,000 Malaysians every day from March/April until 1Q22.
“The BCI, which produced one of its best turnarounds in 3Q20, advanced further in 4Q as sentiment was boosted by the Covid-19 vaccine breakthrough.
“The turnaround in sentiment was also pushed by the massive fiscal and monetary stimulus measures which had been rolled out successively since April in an effort to offset against the headwinds of Covid-19.
“The 29.1-point quarter-on-quarter (q-o-q) jump to 115.4 for the BCI in 4Q20, its best since 2Q18, is consistent with a 7.1-pps increase in capacity utilisation (4Q20: 80%) thanks to firms that remained sanguine on the near-term outlook, ” it added.
The BCI could be heading for a softer patch in 1Q21, however, due to the reimposition of the movement control order in January. But this should recover towards the second half of 2021.But consumer sentiment could be a dampener for businesses and firms may be reluctant to expand capacity, which includes new hiring, as demand may be slow to return due to the pandemic.
PublicInvest noted that the Consumer Sentiment Index was uninspiring in 4Q20 despite the government’s massive assistance. Its 6.3-point q-o-q drop to 85.2 in 4Q20 was a reflection of cautious consumer sentiment due to the sharp resurgence in Covid-19 new cases.
Consumers were particularly concerned with elevated levels of unemployment (average 4Q20: 4.7%) which remained slow to improve compared to the year’s worst (May: 5.3%).
“The swift implementation of the Covid-19 vaccination programme will be key to boosting sentiment amid the removal of the largest drag to growth since the last one year. This is expected to pick-up in pace in 2H with the government’s Covid-19 vaccination programme for the masses, ” it said.