In June, the unemployment rate rose to 4.8% from 4.5% in May, marking the first increase after four consecutive months of decline since January 2021, bringing the average unemployment rate for 1H2021 to 4.71%.

 Moving forward, the labour market recovery may hit another bump in July as the government extended Covid19 restrictions, pushing the unemployment rate further from the pre-pandemic level. Still, we maintain our unemployment rate expectations for the full year of 2021 at 4.5%, underpinned by the encouraging vaccination rate, easing restrictions and reverberations of the government's fiscal stimulus.

A.  Highlights

• June’s unemployment rate rose to 4.8% from 4.5%, which is the lowest point since March 2020. It is the first increase. after four consecutive months of decline since January 2021.
• Employed persons were reduced by 0.5% (73.3K persons) to 15.30mil compared to 15.37mil persons in May, while the number of unemployed persons increased by 5.6% (40.6K persons) to 768.7K, from 728.1K persons in May.
• Interestingly, more employees are categorized as the “own-account workers” segment as it increased by 4.1K persons to 2.50mil while the employee category shrank by 56.7K persons to 11.87mil.
• In the meantime, the decreasing labour force to 16.07mil persons from 16.10mil persons in May has pushed the labour force participation rate down to 68.3% compared to 68.5%in May.
• It is also worth noting that due to the implementation of the latest lockdown, the number of persons who were temporarily not working soared to 801K persons, from 139.6K during the month of May.

B.  Key Takeaways

• As we expected, the effects of the renewed nationwide MCO during June were reflected in the worsening condition of the labour market, as the data showed the unemployment rate diverging higher from the pre-pandemic level.  
• However, the stimulus package provided by the government, specifically the wage subsidy programme, may have helped  alleviate the pandemic effects.  
• As businesses were trying to recover the losses from MCO 2.0, the implementation of the latest lockdown has pushed the businesses cut cost and lay off some of their workers, as shown by the declining employee category.  
• The business condition was heavily challenged as only essential sectors were allowed to operate under certain capacity.
• Moving forward, the labour market recovery may hit another bump in the month of July as the government extended the restrictions, pushing the unemployment rate further from pre-pandemic level.
• On the other hand, the Pemulih package may provide some buffers to the businesses and consumers alike, subduing the pandemic restriction effects. Looking at the longer term, the business condition will be further supported by the current vaccination roll-out pace that will lead to faster reopening of the economy.  
• For the full year of 2021, we maintain our unemployment rate expectation at 4.5%, before it can reach the pre-pandemic level during 2022.

Malaysia

 2Q GDP expected to turn around

Industrial production (IP) in June rose at a slower pace of 1.4% y/y (May: 26.1% y/y), mainly underpinned by the mining sector (10.3% y/y) while manufacturing (-0.2% y/y) was supported by export-led activities with domestic activities affected by the lockdown measures. Electricity (-4.8% y/y) was also weak in June.

With 2Q IP averaging at 25.9% y/y (1Q21: 4.0% y/y) and exports at 44.0% y/y (1Q21: 18.0% y/y) plus a low base, 2Q GDP should turn around from the negative growth trajectory for the past four quarters for the first time. 2Q GDP is likely to hover around 11%–13%. For now, we maintain the 4.0–4.5% GDP outlook for 2021.

Highlights  

• Industrial production (IP) in June rose at a slower pace at 1.4% y/y (May: 26.1% y/y), mainly underpinned by the mining  sector (10.3% y/y) while manufacturing (-0.2% y/y) was supported by export-led activities with domestic activities affected by the lockdown measures. Electricity (-4.8% y/y) was also weak in June.
• Looking at the manufacturing sector, it primarily benefited from the export-led activities as it climbed 8.7% y/y (25.3% y/y in May). Positive contributions from semiconductors, medical-related and resource-based activities also supported this segment.
• Domestic-oriented manufacturing industries plunged 20.8% y/y in June (+38.8% y/y in May). It was primarily dragged by MCO 3.0 and the strict SOPs.

B. Key Takeaways  

• With 2Q IP averaging at 25.9% y/y (1Q21: 4.0% y/y) and exports at 44.0% y/y (1Q21: 18.0% y/y), these suggest that 2Q GDP should turn around from the negative growth trajectory for the past four quarters for the first time.
• Besides, the low base provides a big lift to GDP growth. 2Q GDP is likely to hover around the 11%–13% range.
• The outlook for 2H21 will depend on the vaccination speed, management of Covid cases, reopening of the economy, stimulus measures and domestic stability. For now, we maintain the 4.0–4.5% GDP outlook for 2021.

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