January 20, 2021 House of Trust

Weekly Economic Update (Week 3 of January 2020)

I. Retrenchment & Downsizing in 2020

  • Malaysia’s unemployment rate could rise from 3.3% to between 3.4% and 3.6% in 2020 as retrenchment exercises increase. 
  • An estimated 37,260 people were laid off in 2019, compared to 23,697 in 2018. Job vacancies are dwindling, easing to an average of 83,700 for the first 10-months in 2019 compared to 92,200 in the same period of 2018. (Source: AmBank Research
  • As such, Malaysians@Work initiative in Budget 2020 (allocation of RM6.5 billion) is expected to create 350,000 jobs by incentivizing employer with RM300/month and employeer with RM500/month in EPF contribution for two years.
Source: AmBank Research

Bait Al-Amanah Economic Analysis

The Malaysians@Work initiative may not be effective because: 

  • RM800/month will not match the cost of creating one job.
  • Reduces employment opportunities for fresh graduates since the scheme is only applicable for the job seeker has been unemployed for 1 year.
  • Encourages graduates to delay their job search for 1 year. 
  • Concern of current employers is the quality of employment rather than job opportunity.
  • Investment to enhance quality of graduates is more effective. 

II. Rise of Gig Economy in 2020 

  • 26% of the current workforce freelances and the number is expected to grow with expectations of more downsizing happening. 
  • A global study including 1,118 Malaysians has found that 38% of Malaysian respondents who are currently in full-time employment are looking to enter the gig economy in the next 12 months, significantly higher than the global average of 20%. (Source: Zurich Insurance Group & Smith School of Enterprise and the Environment (University of Oxford).
  • As more Malaysians join the gig economy, the low understanding of income protection and insurance will be an increasing cause for concern.
  • The gig economy is expected to be included in the 12th Malaysia Plan 2021–2025, in which the welfare of gig economy workers will be regulated. 

Bait Al-Amanah Economic Analysis

Policy Considerations for Regulation of Gig Economy: 

  • Pro-productivity and pro-business approach
  • Social safety nets including Employers Provident Fund (EPF) and Social Security Organisation (Socso) 
  • Amendment of Industrial Relations Act to ensure protection of employees
  • Increase efficiency and reduce waiting time for regulatory compliance (eg. Public Service Vehicle licences) 
  • Striking a balance between maintaining flexibility and ensuring the safety of consumers

III. Economic outlook for east asia and pacific (EAP)

Source: World Bank
  • Growth in this region is projected to slow from an estimated 5.8% in 2019 to 5.7% in 2020.
  • While growth is expected to remain robust in the short term, the potential growth is likely to continue to decline in the long term.
  • Growth in China is expected to gradually slow to 5.9% in 2020.In the rest of the region, growth is expected to recover slightly to 4.9% in 2020.
Source: World Bank
  • A decline in potential growth in the region is expected to reflect deteriorating demographic trends, especially in China, Thailand, and Vietnam, combined with a slowdown in capital accumulation and lower total factor productivity in China as credit growth is under control.
Source: World Bank
  • Productivity growth has slowed, but productivity rate in EAP is still the strongest among emerging market and developing economy (EMDE) regions. However, the deceleration in productivity in EAP after the financial crisis was the second fastest among EMDE regions.
Source: World Bank
Source: World Bank
  • Despite strong productivity growth, productivity levels in most economies in EAP remain lower than the EMDE average.
  • Most of the drivers of productivity growth are expected to become less favourable in the future. The region’s nations need to unleash domestic sources of productivity growth, especially as they are less able to rely on export growth now than in the past.
  • Major areas for reforms include human capital enhancements, addressing informality, fostering innovation, and urban development boost.
  • For long-term sustainable development, debt overhangs need to be addressed and excessive leverage needs to be avoided.

For the PDF version of the full update, refer to the attachment below:

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