Unemployment to remain low, challenges expected

The Star

20-07-2025

PETALING JAYA: Malaysia's unemployment rate is expected to average at below 3% this year, underpinned by increased employment and sustained job opportunities, particularly in the services sector.
However, economists are cautioning that factors such as geopolitical uncertainties could certainly pose risks.
Malaysia's unemployment rate dropped from 3.1% in March to 3% in April and May, the lowest in 10 years, according to the Statistics Department.
Going forward, Williams Business Consultancy Sdn Bhd founder and economist Geoffrey Williams expects the country's unemployment rate to remain low.
'In the second half of this year, unemployment will be low as usual, underemployment will be high as usual and wages will barely cover rising prices for most people,' he quipped.
'In one sense, the labour market is correcting itself because people are moving more into the gig-economy, micro-enterprises, freelancing and side hustles.
'This is because formal employment is a very bad deal with low wages, bad terms and conditions and not enough flexibility,' Williams told StarBiz.
Centre for Market Education chief executive officer Carmelo Ferlito meanwhile said he 'does not foresee any short-term radical change' to the country's unemployment rate.
'I think Malaysia's unemployment remains within what can be called structural unemployment and at a very low rate.
'However, we need to watch the medium-run, to see the effects of the trade war (if it will indeed happen or if it will remain on paper) and the recent decisions from Bank Negara, which may have an alternance of good and bad effects in the medium and long run.'
Bank Negara cut the overnight policy rate (OPR) by 25 basis points to 2.75% at its July Monetary Policy Committee meeting.
Commenting on Malaysia's job market performance so far this year, Williams noted that everything does look good. At least on paper.
'More people are joining the labour force, but this is not a good signal because they are young individuals who are dropping college to get an income for their families or taking part-time jobs to boost the household income.
'Moreover, unemployment is remaining low but underemployment has become a structural problem. People take jobs below their qualifications because they have no choice and need to support themselves and their families.'
Williams also noted that wages are still low and stagnant.
'Median wages only rose by 3.4% last year to around RM3,045. This means half of the people on formal private sector contracts are essentially 'working poor'. They have a job but are still struggling to make ends meet.
'As the cost of living rises, the amount you can buy with your wage, the so-called median 'real wage', has fallen by almost 9%.'
Williams said the downward pressure on wages is due to higher labour force participation by younger people and the cost of living.
'Wages are forced down and prices are rising. Also, in manufacturing, persistently low productivity means manufacturing wages have been falling in real terms since the Covid-19 pandemic.'
Meanwhile, BIMB Research said the country's job market performance thus far points to rising confidence among job seekers and stronger workforce participation, supported by continued economic expansion.
'The combination of steady job creation and low unemployment suggests improved job matching, with more individuals able to find suitable employment.
'Labour-force growth persisted, bolstered by sustained demand for electrical and electronics exports and broader economic resilience.'
However, the research house noted that youth unemployment remained elevated at 10.2%, despite a slight 0.1 percentage point improvement, highlighting persistent structural barriers to youth employment and labour market entry.
'Looking ahead, Malaysia's labour market is expected to maintain a steady trajectory through 2025, supported by resilient domestic demand and ongoing expansion in the services and technology sectors.
'These favourable labour market conditions are likely to bolster consumer spending and help sustain economic momentum, even as global trade headwinds persist.'
However, BIMB Research said export-oriented industries may come under pressure from elevated global tariffs, which could dampen hiring activity and wage growth in the external sector.
'In this context, the recent cut in the OPR to 2.75% is expected to provide a timely boost by lowering borrowing costs, stimulating domestic demand, and encouraging private sector hiring, particularly in interest-sensitive sectors such as construction, services, and manufacturing.
'Overall, employment growth is projected to remain firm, with the unemployment rate expected to average around 3.2% for the year, reflecting a broadly stable and resilient labour market despite external uncertainties.'
Elsewhere, MIDF Research also remains positive on the outlook for Malaysia's job market.
'We expect Malaysia's unemployment rate to average lower around 3% in 2025 (previous forecast: 3.1%; 2024: 3.3%), underpinned by increased employment and sustained job opportunities particularly in the services sector.
'Job creation and strong labour demand are expected to be driven by resilient domestic consumption and sustained investment activity.'
However, the research house said it remains cautious that tariff-related disruptions could dampen global demand and weigh on hiring in export- and commodity-linked sectors.
'On the other hand, rising employment and steady wage growth are likely to be concentrated in domestic-oriented sectors that are relatively insulated from the impact of higher US tariffs.'