Business

Saturday October 3, 2009

Recovery on the right track

By CECILIA KOK


AH, some good news in the local labour market.

Against a backdrop of worsening unemployment in most countries in the world due to the still-weak economic conditions, there are some cheer in Malaysia’s labour market, which saw an improvement during the second quarter of the year.

Data released by the Department of Statistics show that the unemployment rate in Malaysia had fallen to 3.6% in the second quarter, after rising to 4% between January and March, from 3.1% in the fourth quarter of last year.

Although the total labour force in the country during the quarter under review grew to 11.45 billion, compared with 11.2 billion in the preceding quarter, the sluggish economy still managed to provide some jobs to keep the number of unemployed individuals lower at 415.7 million in the second quarter, compared with 450.7 million in the first quarter.

But bear in mind, these are more than just numbers. The unemployment figures represent the anguish and despair of many individuals in the country.

And the official numbers could sometimes “under-report” this fact, as it only takes into account individuals “who are available for work at the current wage rate and are actively seeking jobs but could not find one”. It does not, for instance, count those who have given up looking for jobs and those are voluntarily unemployed.

Thus far, the unemployment situation in Malaysia is affecting mainly the manufacturing sector, which is represented by around 10% of the country’s total workforce.

Even so, the recovery of the local labour market seems to suggest that the measures taken by the Government under its fiscal stimulus packages to contain the rise of unemployment in the country are working.

To recap, under the RM60bil Mini Budget announced in March, the Government had endeavoured to create 63,000 contract jobs in the public sector and provide various incentives to encourage employers in the private sector to create jobs. These include doubling the tax deduction for those who hire retrenched workers.

As it is, the retrenchment of workers in the country has eased considerably, according to reports from the Human Resources Ministry.

The number of retrenched workers between April and June stood at 7,470, compared with 12,590 during the first three months of the year. Data as at the middle of September showed that the number of retrenched workers for the third quarter has dropped further to 2,274.

With the additional stimulus packages of RM1bil per month till the end of next year, as announced recently by Prime Minister Datuk Seri Najib Tun Razak, the local job market will most likely hold steady and weather the storm until the economy finds a stronger footing.

At the moment, though, the official estimate of unemployment for the full year of 2009 still stands at 4.5%.

Better sentiment

Despite the odds, a more favourable job expectation will translate into an improvement in consumer confidence.

This element, which the late economist John Maynard Keynes termed as “animal spirits”, is essential in boosting domestic consumer spending. And that is exactly what we need, especially in times like these, to cushion the Malaysian economy from the external challenges.

A survey conducted by the Malaysian Institute of Economic Research (Mier) showed that the local consumer sentiment had started turning positive, with the index exceeding the threshold of 100 points, since the second quarter of the year.

Mier’s measure of consumer sentiment for the third quarter has yet to be released, but the index is expected to remain in the positive territory, in line with the improvement in the local labour market as well as the economic conditions in general.

The independent think tank said its survey also confirmed earlier that consumer-spending plans were on again as the local economic conditions had somewhat stabilised.

One of the indicators supporting this claim perhaps can be seen in the demand for credit by the household sector.

As reported by Bank Negara over the week, all lending indicators for the sector rose for the seventh consecutive month in August. This, in part, is due to the low interest rate environment, with the overnight policy rate maintained at the historical low of 2% since February this year.

Year-on-year, loan applications, approvals and disbursements for the household sector during the month in review rose 30.2%, 21.6% and 21.9%, respectively. In particular, three key segments – transport vehicles, residential property and working capital, which collectively represent 70% of total loans outstanding – have been growing steadily on a month-on-month basis.

But while the demand for credit in the household sector continued to be robust, the opposite is true for the business sector.

Year-on-year, August loan applications, approvals and disbursements for the business sector in August fell 44.3%, 52% and 18.2%, with the indicators for the SME segment recording declines of 1.8%, 10.9% and 21.5%, respectively.

As credit demand by the business sector can partly reflect the level of investment activities taking place in the economy, the sharp contractions recorded in August could be a worrying trend in an environment where private sector investment is already weak.

Analysts, however, explain that the poor numbers for the month in review were largely due to a high base effect in the same period last year, which is just one month before the start of the global economic mayhem.

Business confidence, as indicated by Mier’s earlier survey, has improved considerably since the second quarter of the year. If this is sustained for longer time frame, investment activities are likely to come back to life again.

This will hinge on how the global economic conditions pan out over the next few quarters. Needless to say, the measures introduced by the Government will also play a role in encouraging more private investments in the country.

As it is, there are already many indications signalling that the global economy is recovering at a gradual pace.

Over the week, the International Monetary Fund said a strong rebound next year was expected. It raised its 2010 forecast of the world gross domestic product (GDP) to grow at 3.1%, compared with its growth estimation of 2.5% three months ago.

But the organisation said the world GDP would still contract by at least 1.1% in 2009, as compared with its July projection of a 1.4% decline.

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