Unemployment remains an issue amid economic contraction

Govt needs to facilitate job shift in labour market training and match jobseekers to suitable employers


THE current economic decline, the worst since 1998 as a result of the Covid-19 pandemic, has exacerbated the country’s rising unemployment rate.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the job market will continue to be an issue as the jobless rate will likely stay higher.

“The challenge is how job creation can happen swiftly at a time when there are restrictions in economic activities.

“Therefore, businesses would focus on their available resources and that would include labour,” he told The Malaysian Reserve (TMR).

The Malaysian economy contracted by 3.4% in the fourth quarter of 2020 (4Q20), bringing the full-year GDP performance in 2020 to a contraction of 5.6%, the biggest decline since 7.4% in 1998.

Bank Negara Malaysia (BNM) governor Datuk Nor Shamsiah Mohd Yunus said the 2021 economic outlook will be published in BNM’s annual Economic and Monetary Review report to be released next month.

“In accordance with tradition, we will firm up this year’s growth forecast next month when we release our Economic and Monetary Review 2020,” she told reporters during a virtual media conference announcing the 4Q20 GDP last week.

As for the Overnight Policy Rate (OPR) stance, Nor Shamsiah said the 125-basis-point reduction in OPR last year would continue to provide stimulus to the economy in 2021.

“At 1.75%, the Monetary Policy Committee considers the stance of monetary policy is appropriate and accommodative,” she said when asked on possible further cuts by the central bank.

She said the fiscal space used for Covid-19 pandemic needs to be rebuilt, guided by medium-term fiscal plan and several reform initiatives that include the establishment of a medium-term revenue strategy and formulation of the Fiscal Responsibility Act.

“The Ministry of Finance had also indicated that efforts are currently underway to enhance the tax framework, reduce leakages, as well as broaden and diversify the revenue base to reduce the country’s dependency on commodities.

“All these will help ensure long-term sustainability of Malaysia’s fiscal position. The fiscal deficit target remained at 5.4% of GDP this year,” she added.

Nor Shamsiah also said an automatic blanket moratorium would not be in the best interest of the economy and the rakyat, as it would erode banks’ buffers and make it difficult for individuals and businesses to obtain new loans.

She said 1.4 million Malaysians have applied for repayment assistance, with the approval rate at 95%, adding that about 45% of borrowers are opting for a reduction in monthly instalments.

Mohd Azfanizam said the market will also remain guarded pending a decision whether the Movement Control Order (MCO) would be extended.

He said the government needs to facilitate the job shift in labour market training and match jobseekers to suitable employers.

“Perhaps, more awareness campaigns on government programmes to the public, especially in areas of training and job placement, are needed,” he added.

Meanwhile, Sunway University economics Prof Dr Yeah Kim Leng is of the view that the banking, financial and capital market sectors remain relatively intact, while manufacturing and supply chain segments have recovered partially to register positive growth since June last year.

He said the supply-side recovery and strong performing financial markets, which have been boosted by aggressive monetary and fiscal responses by the government, have backstopped the slide in market sentiments and investor confidence.

“Once the pandemic subsides, we expect a much stronger recovery in market sentiments, and consumer and investor confidence.

“The recovery in commodity prices, especially crude oil, has also buoyed sentiments and lent support to the expected increase in corporate earnings that will continue to improve as the economic recovery becomes more entrenched towards the second half of this year,” he told TMR.

Yeah said the quicker the third Covid-19 wave is brought under control, the faster it will be for the recovery in domestic spending to complement strengthening export demand.

“Although not a panacea, an early rollout and good coverage of the mass vaccination programme will enable the pandemic to be brought under control more quickly and effectively for consumer confidence to return.

“Consumer and business sentiments will certainly be boosted by a more comprehensive strategy involving both mass vaccinations and continuing observance of public health protocols as both will increase the likelihood of successful containment and avoidance of a resurgence,” he added.

On 1Q21’s GDP outlook, AsiaPacific Applied Economic Association VP Dr Baharom Abdul Hamid said rational expectation would be still negative for 1Q.

“We cannot be brushing aside the fact that we had to reintroduce the MCO in January and February as it would have a negative impact.

“The pace of our neighbours making the vaccine available much faster and wider could also mean us losing some trades, business or investors to them,” he told TMR.

He said market sentiments are somehow satisfied, though not fully excited, with investors more concerned on the political instability and Malaysia’s long-term policies on sustainability.

“As well as the size and type of financial stimulus plans and execution plans before making decisions, hence investors seem to adapt a ‘wait and see’ attitude.

“Trend of Covid-19 cases needs to show improvement, the actual vaccination needs to be executed, and timing and the width of the coverage play an important role as well,” he explained.

On other development, Nor Shamsiah said 40 parties have registered their interest with BNM to apply for digital banking licences.

“The central bank is expected to award the licences in 1Q22 and five digital banking licences may be issued to qualified applicants,” she added.

In December 2020, BNM issued the Exposure Draft on Licensing Framework for digital banks that form part of the series of measures adopted by the bank to enable innovative application of technology in the financial sector.

The central bank has set June 30, 2021, as the deadline for submission of applications for digital banking licences.

Read our previous report here

Malaysia’s economy recorded the biggest decline since 1998