KUALA LUMPUR (Jan 11): Economists have raised their forecast on unemployment rate for 2021 as they expect a slower recovery in the labour market ahead.

In a note, UOB Global Economics and Marco Research said the near-term outlook of the labour market is expected to be dim as the third wave of the Covid-19 pandemic enters in January.

UOB noted that the necessary measures taken to contain the pandemic are expected to impact the recovery pace of the economy and labour market.

"The impact will depend on the extent of the new standard operating procedures (SOPs), length, and coverage of the measures," UOB commented.

UOB observed that economic activities were also losing some momentum in the fourth quarter of 2020 (4Q20) and 1Q21 following the enforcement of the Conditional Movement Control Order since October 2020.

As such, they expect the recovery path will only start from 2Q21 onwards, assuming that Covid-19 vaccine inoculation starts in February to March and all policy support is executed effectively and efficiently.

Its jobless rate forecast stands at 4% in 2021, an improvement from 4.5% forecast in 2020. However, its initial forecast for 2021 was 3.7%.

Meanwhile, MIDF Research has also revised its forecast on Malaysia's unemployment rate to 4.5% from 4.3% in 2020, and 3.8% this year.

"Looking at the resurging Covid-19 cases which had been increasing at record pace and the anticipation for tighter restrictions, we foresee challenges remain for the labour market to continue recovering in coming months as businesses may hold back hiring on concerns over weaker domestic demand and sales outlook," the research house opined.

That said, it noted that with businesses allowed to operate according to SOPs, it expects growing labour demand could continue going forward as the weak demand condition will eventually improve along with sentiment in view of the availability of Covid-19 vaccines.

In 2021, MIDF Research expects labour market recovery to continue benefitting from government initiatives that have been deployed to support employment growth such as MySTEP and the extension of Wage Subsidy Programme, and the expected rebound in economic growth.

Malaysia's unemployment rate reached a five-month high of 4.8% in November, from 4.7% in October. The number of unemployed people in the country grew 2.2% to 764,400, from 748,200 in October, with labour force participation falling to 68.4% from 68.5% in October.

Total employment dropped by 0.1% to 15.2 million people in November, from 15.21 million, on account of sluggish hiring in the agriculture, mining & quarrying, and tourism-related sectors.

A silver lining is that the manufacturing sector posted higher employment, particularly for sectors such as rubber gloves & products, printing, food & beverages, electrical & electronics, motor vehicles, as well as wooden & cane furniture.

UOB views that this could be credited to the continuation of the government's wage subsidy, hiring, and training programmes, and selected sectors that are operating at full capacity.