Unemployment to spiral as wage subsidy ends, RMCO extended

An Asean-coordinated strategy to reopen borders needs to be formulated, says Ferlito


THE Recovery Movement Control Order (RMCO), which has been extended all the way to Dec 31, will see the unemployment rate spiral even further, especially with the government’s wage subsidy scheme coming to an end this month.

The Centre for Market Education CEO Dr Carmelo Ferlito said the situation is also not expected to improve as international borders are still closed, on top of the extended RMCO and the ending subsidies.

“This will immediately affect restaurant and hotel workers. KLCC was made for tourists and business travellers, so the impact will be most severe there. In the long run, workers in other industries will also be affected.

“When international customers and suppliers cannot meet, business opportunities will be missed,” he told The Malaysian Reserve (TMR).

The RMCO, which was to end on Aug 31, has been extended to Dec 31 as more time is needed to protect Malaysia from the pandemic.

Ferlito said the negative consequences of the RMCO on the economy would be more visible in the fourth quarter, and an Asean-coordinated strategy to reopen borders needs to be formulated.

“Give priority to business travellers, because they bring long-term economic opportunities and not just power-spending like tourists.”

He said the whole economy would benefit from this strategy, not only the airline industry.

Malaysian Rating Corp Bhd (MARC) chief economist Nor Zahidi Alias said the unemployment rate has spiked and will continue to remain elevated in the near term, even without the extended RMCO.

MARC is looking at an average jobless rate of circa 4.5% this year, with a recession in 2020 a foregone conclusion.

However, Nor Zahidi said it is important to note that the sharp downturn in 2020 is primarily due to the unprecedented impact of the stringent containment measures imposed to control the Covid-19 pandemic rather than any abrupt material change in economic fundamentals.

“These containment measures, although resulting in significant short-term discomfort, are necessary to ensure that economic growth can be revived when the situation improves.

“As we have noted in our past reports, allowing the economy to run unimpeded could rupture the existing economic fabric beyond repair, preventing any smooth recovery in the future,” he told TMR.

Malaysia’s June 2020 unemployment rate declined month-on-month to 4.9% from a record-high of 5.3% in May 2020 as more sectors, including the services industry, reopened with the implementation of the nation’s RMCO.

MARC is still forecasting two additional quarters of GDP contractions, leading to an overall GDP growth of between -5.5% and -7% in 2020.

“For next year, however, we are projecting a rebound in growth to between 6.2% and 6.7%,” Nor Zahidi said.