Labour market will remain healthy in 2H22 — Analysts

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Labour market in Malaysia is expected to strengthen further in 2H22 underpinned by upbeat momentum in domestic economy and steady expansion in external sector, analysts observed. — Bernama photo

 

KUCHING: Due to slowing global growth, tightening monetary conditions, and labour shortages, analysts expect Malaysia’s industrial production (IP) to slow in August to December 2022 while the labour market will remain healthy in the second half of 2022 (2H22).

According to RHB Investment Bank Bhd (RHB Investment Bank), July Industrial Production Index (IPI) surprised on the downside with growth of 12.5 per cent year on year (y-o-y), which is below the Bloomberg consensus estimate of 15.2 per cent.

“On a month on month (m-o-m) basis, IPI declined by 4.7 per cent in July versus June: 9.6 per cent amid a fall in mining and manufacturing sub-categories,” the research firm recapped.

“On a momentum basis, the manufacturing activities soften slightly for the month due to slower activities from both domestic and export-oriented industries.

“As indicated by our proprietary database, the manufacturing activities have begun to show signs of slowdown.”

RHB Investment gathered for the first seven months of 2022, the IPI have expanded by 6.6 per cent y-o-y.

The research firm highlighted that in view of heightened downside risks due to slower growth in major economies such as the European Union (EU) and China as well as tightening monetary conditions, the upward momentum in IPI growth might be tapered towards the year-end, translating into a full year IPI growth of 5.4 per cent y-o-y for 2022.

“Softening momentum in export growth is to be anticipated in upcoming months especially from the E&E and commodity related sectors, which in turn might exert downward pressure on manufacturing sector activities in Malaysia.

“The semiconductor sales have started to lose momentum in recent months amid easing of consumer electronics demand, complicated further by the geopolitical tensions.

“The S&P Global Malaysia Manufacturing Purchasing Managers’ Index (PMI) have slowed to 50.3 points in August versus 50.6 points in July amid softer export demand for Malaysian manufactured goods.”

On labour market conditions, RHB Investment Bank noted that it remained resilient for the month of July with a continuous decrease in the unemployment rate.

“The unemployment rate dropped further to 3.7 per cent in July versus 3.8 per cent in June.

“Our end-2022 unemployment rate of 3.7 per cent has materialised sooner than anticipated.”

Meanwhile, the research arm of MIDF Amanah Investment Bank Bhd’s (MIDF Research) jobless rate forecast remained at 3.8 per cent for 2022.

“Labour market in Malaysia is expected to strengthen further in 2H of 2022 (2H22) underpinned by upbeat momentum in domestic economy and steady expansion in external sector,” MIDF Research said.

“Underpin by domestic reopening and strong economic fundamentals, Malaysia’s unemployment rate is projected to trend lower this year to 3.8 per cent in 2022 from 4.6 per cent in 2021.”

That said, MIDF Research noted the projected jobless rate is still higher than pre-pandemic’s 3.4 per cent.

Employment growth has been forecasted by the research arm to be at an increase of 2.5 per cent, from an increase of two per cent in 2021, while unemployment to shrink by 15 per cent this year (2021: an increase of three per cent).

“As of 7MCY22, jobless rate averaged at four per cent while employment growth at 3.5 per cent y-o-y and unemployment fell by 14.4 per cent y-o-y.”