Malaysia Labour Market Faces Stronger Headwinds in 2H26

Malaysia’s labour market remained resilient in June, but softer hiring momentum and rising job losses point to stronger headwinds in 2H26.

Malaysia Labour Market Faces Headwinds

Malaysia’s labour market remained stable in June, with the unemployment rate holding at 3.0%, despite persistent external headwinds and geopolitical uncertainty. However, emerging signs of softer hiring momentum suggest labour market conditions could face greater pressure in the second half of 2026.

The number of unemployed persons rose for the fourth consecutive month to 517,800 in June, from 513,400 in May, while active jobseekers increased to 410,900.

Employment growth also moderated to 0.01% month-on-month from 0.05% previously, although hiring remained supported by the services sector, particularly transportation and storage, accommodation, and food and beverage.

Manufacturing and construction employment continued to expand, while agriculture and mining recorded declines. The labour force edged up 0.04% to 17.34 million, while the labour force participation rate remained unchanged at 70.9%.

The outlook remains broadly positive, supported by firm domestic economic activity. Services, which accounts for nearly two-thirds of total employment, is expected to remain the main driver of hiring, underpinned by household spending and policy support.

Manufacturing employment, particularly in electrical and electronics, should also benefit from sustained semiconductor demand linked to the ongoing AI upcycle.Nevertheless, risks are becoming more pronounced.

Lingering Middle East tensions could increase business uncertainty and operating costs, prompting companies to moderate recruitment. Malaysia’s manufacturing PMI for July showed firms reducing staffing levels, while SOCSO data indicated that loss of employment increased for a fourth consecutive month to 9,013, the highest since January.

Despite these pressures, job vacancies rose sharply to 242,434 in July, offering some offset to higher job losses. Overall, elevated material and operating costs are expected to weigh more heavily on businesses in 2H26, potentially capping hiring demand. Still, employment prospects are expected to remain broadly intact, with the unemployment rate forecast at 3.0% for 2026.

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