PETALING JAYA: The ongoing conflict within the Middle East is not expected to have any immediate repercussions on the local labour market, say economists.
However, a prolonged situation lasting several months could eventually have adverse effects on the country’s employment landscape.
Williams Business Consultancy Sdn Bhd founder and economist, Geoffrey Williams, said he does not expect a big impact on inflation from the Middle East conflict.
“This is because although higher energy costs may push up import prices, the high ringgit is helping keep import costs down.
“Supply chains through the Middle East, either through the Strait of Hormuz or through air freight hubs will be disrupted.
“But Malaysia’s trade with Asean, China and other Asia Pacific countries is very strong,” he told StarBiz.
Moreover, Williams noted that even trade with the US crosses the Pacific, and not the Middle East.
“Therefore, we will not see too much of an impact unless the conflict lasts beyond May. Bank Negara Malaysia will likely hold interest rates until then at least. If the conflict ends soon, as expected, then there is no need to cut rates.
“Based on this, the labour market will remain the same – low unemployment, higher underemployment and slow wage growth with few high-skilled, high-income jobs, especially for graduates.”
An economist with a local bank-backed brokerage also said a prolonged conflict in the Middle East can affect Malaysia’s labour market – but mostly in indirect ways through economic spillovers, rather than direct exposure.
“The main channel is energy prices. If the conflict keeps oil prices elevated, businesses in Malaysia face higher operating costs, especially in transport, manufacturing, and logistics.
“In response, companies may slow hiring, cut back on overtime, or delay expansion. This can lead to weaker job creation and slower wage growth.”
He added that higher energy costs will also feed into inflation.
“As fuel, food, and electricity become more expensive, households have less spending power.
“That reduced demand can affect sectors like retail, hospitality and services, which may then scale back hiring or reduce staff hours.”
He further noted that Malaysia’s heavy reliance on exports means it is also sensitive to global economic conditions.
“A prolonged war could dampen growth in major economies, reducing demand for Malaysian goods - particularly in manufacturing and electronics.
“This may result in lower production, fewer contract jobs and cautious hiring.
“Supply chain disruptions are another factor. Rising shipping costs and uncertainty can cause fluctuations in orders, leading to inconsistent workloads and, in some cases, temporary layoffs or reduced working hours.”
However, he noted that Malaysia does have a partial buffer.
“As a net exporter of oil and gas, it can benefit from higher energy prices.
“This may support job creation and wages in the energy sector and provide the government with more revenue to cushion the broader economy.
“Still, these benefits are limited to specific industries.”
Overall, he said any impact is likely to be uneven.
“While some sectors may gain, the broader labour market could face slower hiring, wage pressure and increased uncertainty – especially if the conflict drags on and weakens global growth.”
Malaysia’s labour market remained firm in January 2026, with the overall unemployment rate standing at 2.9% during the month, as per data from the Statistics Department.
Economists typically view a 3% unemployment rate as an indication of full employment in the economy.
The labour force participation rate, the proportion of persons employed or looking for work, edged up to 70.9% in January 2026 from 70.8% in December 2025.
One economist said the robust employment and labour market in January was expected, given resilient economic activity then.
“However, we have entered a more uncertain period defined by escalating conflict in the Middle East, which has triggered a looming energy crisis, specifically due to the blockade of the Strait of Hormuz.”
As a primary artery for global trade, he noted that this disruption has choked off critical supplies of oil and gas, as well as essential raw materials.
“These supply chain shocks threaten to spike production costs and inflation risks, potentially cooling the labor market, if the conflict and disruptions extend for longer.”
Commenting on the country’s January job statistics, Williams said “unemployment is not the most important issue in the labour market.”
“It is underemployment that is the big problem, with nearly two million people in jobs below their qualification levels.
“This pushes down wages for everyone because higher skilled people take low skilled jobs at low wages. The extra supply pushes down wages, which are not keeping up with expectations,” he said.
For now, TA Research said Malaysia’s labour market is expected to remain resilient in the coming months, supported by steady economic expansion, sustained labour demand and continued recovery in key sectors.
“The economy continued to demonstrate resilience at the start of 2026, underpinned by stable domestic demand and supportive monetary conditions.
“Bank Negara Malaysia’s decision to maintain the overnight policy rate reflects stable inflation dynamics and confidence in the sustainability of economic growth, which in turn supports business sentiment, hiring activity, and overall labour market stability,” it said in a recent report.
It highlighted that the tourism sector is also expected to remain a key driver of economic activity.
“For instance, Johor is targeting 12 million tourist arrivals in 2026, with projected economic contributions exceeding RM42bil.
“Under the Visit Johor Year 2026 initiative, the state government plans to organise over 100 tourism programmes and events across all ten districts, in collaboration with various agencies and industry stakeholders.”
TA Research said these initiatives are expected to enhance Johor’s tourism appeal, stimulate local economic activities and support employment in tourism-related sectors.
“In parallel, these efforts will complement Malaysia’s national tourism target of attracting around 47 million visitor arrivals and generating approximately RM329bil in tourism receipts in 2026.”
Overall, the research house projects Malaysia’s unemployment rate to improve further to an average of 2.8% in 2026, supported by sustained economic momentum, stronger private investment and ongoing structural reforms that continue to support job creation.
“Further clarity on the labour market outlook is expected later this month, when Bank Negara Malaysia releases its 2025 annual report, which will include the central bank’s updated assessment and projections for labour market conditions in 2026.”
