KUALA LUMPUR: Malaysia's unemployment rate is expected to remain high for the remaining months this year as some companies are likely to retrench employees.
MIDF Research said most retrenchment was to reducie operating costs in line with the new standard operating procedures in place and on expectations of lower revenue as consumer activities would take longer to fully resume.
"Sentiment is still quite weak as people fear of another wave of Covid-19, hence take a more gradual return to their normal activities.
"Therefore, we foresee unemployment rate to edge up higher than 3.8 per cent previously estimated to 4.0 per cent," said MIDF Research in a report today.
Malaysia's unemployment rate spiked to 5.0 per cent in April, breaking the full employment condition of below 4.0 per cent for first time since the global financial crisis.
MIDF Research said the rate was a manifest of the repercussion of the full month of the Movement Control Order (MCO) where the effort to protect public health had induced decline in economic activities that resulted in retrenchment of employees.
"Employment fell 1.0 per cent year-on-year (YoY) while unemployment growth soared further to 48.8 per cent YoY.
"Employees in the manufacturing and services sectors are observed to be mostly affected,"it added.
MIDF Research expects the unemployment rate to stay at the high side for upcoming month as most of the businesses had not fully resumed their operations.
"Employment in the manufacturing sector has been weakening for some time since 2H of 2018 with growth hovering below 2.0 per cent YoY and it took Covid-19 to push it to negative level.
"This sector in particularly has been surrounded with multiple headwinds prior to the pandemic with the US-China trade war being the biggest risk factor."
MIDF Research said employment in the manufacturing sector had fallen 3.2 per cent YoY in April after almost four years of positive growth.
All the key sub-sectors recorded negative growths, but some key sub-sectors such as organic chemical and inorganic compounds and computers and peripherals equipment managed to record positive growth.
"Decline in overall employment and payroll in the sector was largely due to the pandemic and MCO which caused business closures and resulted in spiking jobless rates."
It said Malaysia plays an important role in the global manufacturing supply chain mainly for the electrical and electronic (E&E) sector, hence global lockdowns had affected the performance as well.
"About 80 per cent of Malaysia's exports are of manufactured goods. Therefore, lower global demand will hit this sector the most," it said.
The firm believes as economy gradually opens and measures taken by government through stimulus packages such as wage subsidy, employment insurance scheme and reskilling and upskilling initiatives, the employment would be more stable in the second-half of the year.