Malaysia's unemployment rate, which rose to 4.8 per cent in June, will likely remain under pressure this year.

Although economists expect the unemployment rate to hover between 4.3 per cent and 4.5 per cent this year, they are cautious as there could be downside risks which may throw a spanner in the works.

In June, the unemployment rate rose to 4.8 per cent from 4.5 per cent in May, marking the first increase after four consecutive months of decline since January, bringing the average unemployment rate for the first half of the year to 4.71 per cent.

The jobless rate stood at 4.8 per cent last year.

The labour market is expected to recover going into 2022 although at a more moderate pace after witnessing a weaker 2021 outlook, according to Bank Negara, the central bank.

This is in line with the faster progress of the vaccination programme and expected lifting of movement restrictions that would support improvement in economic activity, it added.

RAM Rating Services Bhd senior economist Woon Khai Jhek told StarBiz that the current outlook of the job market is still weak.

Further job cuts, especially among the more vulnerable small- and medium-sized enterprises (SME), are likely, he added.

He said this is due the prolonged movement control order (MCO) 3.0 in the Klang Valley, which is a significant generator of jobs and the phase one of the National Recovery Plan (NRP) since June.

“This is evident by the jump in the unemployment rate to 4.8 per cent in June, after four consecutive months of improvement to 4.5 per cent in May. Such weakness will likely persist through July and August as much of the economy, that makes up around 60 per cent of the gross domestic product [GDP], remains under the strictest phase of the NRP.

“Further, the number of job losses filed with the Social Security Organisation in July was six per cent higher than in June, suggesting employment conditions have yet to see any material improvement,” Woon noted.

Selangor and Kuala Lumpur account for about 40 per cent of the country’s GDP alone.

On the upside, he said the vaccination rate has been ramping up quickly.

With the government’s target to fully vaccinate all adults by October, RAM’s Woon is cautiously optimistic about the reopening of the economy and businesses in the fourth quarter.

He said this would increase consumer sentiment and provide an upside for hiring, in turn lowering the unemployment rate.

“Downside risks are any unanticipated major delays in the national vaccination plan or strong resurgence of cases that could delay the reopening of the economy, dampen growth and inhibit consumer sentiments,” he said.

He expected the unemployment rate to fall to 4.3 per cent by end-2021.

Sunway University economics professor Yeah Kim Leng said the stricter MCO nation-wide at the beginning of June where non-essential sectors are not allowed to operate is a major contributor to the reversal in the country’s unemployment trend.

Yeah forecast that the unemployment rate would be at between 4.3 per cent and 4.5 per cent this year.

Although the government has targeted 80-100 per cent vaccination of the population by end October, he said the anticipated economic revival and ensuing job growth is likely to reduce the unemployment rate to below the last year’s 4.8 per cent.

A full job recovery to pre-pandemic’s 3.3 per cent unemployment is less likely this year, he said, noting that it is more likely to hover above four per cent for this year and next.

He said the key to job recovery is the full reopening of the economy whereby sectors that have been shut down or restricted from operating at full capacity are able to return to normalcy.

“The extent to which firms would set up new businesses or invest in capacity expansion and upgrading will be dependent on the confidence and robustness of the economic recovery.

“It will also depend on the ability of the government and the private sector to capitalise on the domestic and external growth and investment opportunities arising from the post-pandemic economic landscape,” Yeah said.

AmBank Group chief economist Anthony Dass said the labour market is expected to remain under pressure this year, noting that outlook for the job market would depend on how fast the economy could be reopened.

He said the current lockdown has impacted the manufacturing and services sectors.

“And a more critical issue comes from foreign investors – the Japanese, Dutch and German trade associations, who are struggling with the standard operating procedures and MCO, may scale down their operations in Malaysia.

“Should that happen, it will have an adverse knock on impact on the SMEs and also on the job market. While formal sector unemployment may hover to around 4.8 per cent to five per cent in 2021, the challenge is on the underemployment, casual workers as well as those in the informal sector,” Dass added.

To support the SMEs and job market, he said it would be good if a “mini” Danajamin concept is established.

Such an entity would prevent SMEs and micro enterprises from winding up, he noted.

“Although the level of bankruptcies are low, it is expected to pick up even after having raised the ceiling to 100,000 ringgit [$23,500] from initial level of 30,000 ringgit.

“More companies falling into banks ‘black list’ will pick up, especially once the stimulus measures ease and in particular the loan moratorium,” Dass said.