Labour market to face challenges in 2H22

United Overseas Bank (UOB) economists Julia Goh and Loke Siew Ting said several key industries continue to face labour shortages as reopening activities spur demand.

PETALING JAYA: The demand for labour in Malaysia is expected to increase in the coming months, in line with the recovery in economic activities.

However, the prospects of the domestic labour market could be capped by several headwinds, including the risk of recession, high costs and labour shortages.

United Overseas Bank (UOB) economists Julia Goh and Loke Siew Ting said several key industries continue to face labour shortages as reopening activities spur demand.

They noted that the employment outlook waned in the second quarter of 2022, amid more cautious consumer and business sentiment.

Elevated costs, supply chain disruptions and rising recession risks could moderate the recruitment drive, moving forward.

“Despite multiple external headwinds, we remain cautiously optimistic on the economic growth outlook in the second half of 2022 (2H22), supported by reopening drivers in Malaysia and across the region, as well as robust trade and cross-border investments.

“As such, labour requirements should continue to increase across the spectrum of skills and industries.

“We maintain our year-end unemployment rate target of 3.6%,” Goh and Loke said in a note yesterday.

For comparison, Bank Negara projected an average unemployment rate of about 4% for the year 2022.

Meanwhile, TA Research expects the jobless rate to hit 3.8% this year, improving from 4.6% in 2021.

“The labour market in Malaysia is expected to strengthen further in 2H22, underpinned by continuing momentum in the domestic economy.

“Furthermore, Malaysia is optimistic that the economic recovery will remain resilient in the coming months, supported by various initiatives and the government’s effective management of the current situation.

“Subsequently, the need for labour is also seen as increasing in line with the development of economic activities,” it said in a note.

On the issue of foreign workers shortage, TA Research said the increase in employers’ applications for non-citizen employment – following the reopening of the country’s international borders – is anticipated to ease the labour shortage issues, especially in the construction and agriculture sectors.

“According to Human Resources Minister Datuk Seri M. Saravanan, Malaysia agrees to integrate the system with Indonesia on the recruitment of foreign workers into the country and hopes the Indonesian foreign worker issue can be resolved soon.

“Non-citizen workers constituted about 13.5% or 2.13 million of Malaysia’s working population in the second quarter this year, which has reduced from an average 14.9% in the pre-pandemic year of 2019,” stated the research house.

Hong Leong Investment Bank (HLIB) Research said the shortage of foreign workers will continue to impact many economic sectors.

It also pointed out that Malaysia is still not seeing a significant return of foreign workers due to slow government approvals and negotiations.

Nevertheless, HLIB Research opined that the labour market is expected to continue its positive recovery momentum in the coming months. This is considering that the economy will continue to recover from the Covid-19 pandemic, especially in the services sector.