PETALING JAYA: Malaysia’s labour market appears firmly in full employment territory, with the unemployment rate holding at 2.9% as of December 2025, the lowest since April 2015, but economists caution that headline strength masks deeper structural shifts that could shape hiring momentum in the first half of the year.
The tight labour market comes on the back of stronger-than-expected fourth-quarter gross domestic product (GDP) growth, reinforcing expectations that domestic demand will continue to underpin employment in the first half of 2026.
Bank Muamalat Malaysia Bhd chief economist and head of social finance Mohd Afzanizam Abdul Rashid described the current conditions as “full employment”, noting that more adult Malaysians are working and receiving steady income, a key objective for policymakers seeking to sustain consumption and economic expansion.
“This is one key and basic metric that any policymakers would want to achieve as this will ensure there is demand in the economy, which then can translate into spending and GDP,” he told SunBiz.
However, Afzanizam stressed that the labour market is evolving rather than overheating.
Despite low unemployment, skill-related underemployment remains elevated at 35.5% in the third quarter of 2025, improved from pandemic highs but still above pre-2018 levels.
“That is like more than a third who have secured a job are deemed underemployed,” he said, adding that this could weigh on income potential and purchasing power over time.
The economist also pointed to the rise in own-account worker, which stood at 3.27 million in December 2025, up from 2.67 million at the end of 2019.
The increase suggests more Malaysians are turning to self-employment, gig work and content creation as alternative income streams.
“This is the trend that we are seeing that may alter the structure of the economy,” Afzanizam said, adding that policymakers must ensure the right ecosystem, from regulation to access to finance, is in place to nurture sustainable entrepreneurship.
From a macro perspective, he said, the current growth trajectory remains supportive of hiring, especially as the government has hinted at a possible upward revision to its 2026 GDP forecast of 4.0% to 4.5%.
Private sector wages have also improved, expanding 4.1% in the fourth quarter of 2025 from 3.8% previously. Still, he does not see wage pressures becoming problematic.
“At best, we think the wage growth is cruising at a normal speed,” Afzanizam said, noting that rising living costs continue to temper real income gains.
Echoing the call for caution, the Centre for Market Education CEO Carmelo Ferlito warned against reading too much into headline jobless figures.
“A 2.9% unemployment rate is low, and we can call it ‘full employment’, although not in a strong sense,” he said. “Malaysia can still have meaningful slack through underemployment, skills mismatch and churn.”
Ferlito characterised current monthly employment growth of around 0.2% as a sign of stabilisation rather than acceleration.
“We are moving from ‘easy’ post-recovery hiring to a phase where job creation depends on investment, productivity and firm-level expansion plans,” he said, adding that hiring is increasingly constrained by worker availability at various levels.
On sectoral prospects, he expects services, particularly retail, food and beverage, logistics, healthcare and tourism-related activities to lead hiring if domestic demand remains the anchor. Manufacturing, meanwhile, remains more exposed to the external cycle.
Looking ahead, Ferlito identified a pullback in private investment as the biggest medium-term risk to the labour market. “Investment is what builds the future job base, especially better-paying jobs that lift productivity and wages sustainably.”
For financial markets, the robust labour backdrop is viewed positively.
Rakuten Trade Sdn Bhd equity sales head Vincent Lau said stronger employment and income growth should translate into higher investable funds among retail investors.
“The stronger labour market outlook bodes well for our market, meaning real growth and more employment equals more investable funds by retailers.”
Rakuten Trade expects stronger retail participation this year, in line with the return of foreign funds.
On monetary policy, Afzanizam said current conditions remain conducive for banks, with credit risk declining.
The gross impaired financing ratio for banks fell to 1.37% in December 2025 from 1.44% a year earlier, while household ratios also improved.
He does not expect an interest rate cut this year, a view echoed by Rakuten Trade, which sees policy stability amid steady growth.
Taken together, economists say Malaysia’s labour market is resilient but is transitioning from recovery-driven gains to a more structurally defined phase in which productivity, investment and the quality of jobs will matter as much as the unemployment rate itself.
According to a Feb 12 report by the Department of Statistics Malaysia, Malaysia’s labour demand rose 1.8% to 9.21 million jobs in fourth-quarter 2025, driven by government support and policy initiatives. The services sector led growth, accounting for 53.1% of filled jobs, followed by manufacturing and construction, with semi-skilled workers forming the largest group.
The Sun Malaysia
