KUALA LUMPUR (March 12): A moderate domestic growth outlook in Malaysia could put upward pressure on unemployment this year, according to AmBank Research.

In an economic report this morning, the research firm's chief economist Dr Anthony Dass cautioned that unemployment rates in Malaysia this year could return to the 3.5% level last seen in 2016.

Dass, who is also adjunct professor in economics at University of New England, Sydney, Australia, said the unemployment rate in January remained at 3.4% for the fourth consecutive month while the hiring pace slowed down, adding 6,800 jobs compared with 44,700 in December 2018.

"Meanwhile, the labour force participation rate (LFPR) improved to 68.6% in January from 68.5% in December.

"Looking at the informal sector, it rose 0.5% year-on-year (y-o-y) in January compared with 0.4% in December. We noticed the trend of growth in this segment has been gaining since July 2018.

"[However], with a moderate domestic growth outlook at 4.5%, there could be some upward pressure on unemployment in 2019. Room for unemployment to reach 3.5% in 2019 from 3.3% in 2018 remains high," said Dass.

Using manufacturing as the proxy, Dass said wages grew by 10.1% y-o-y in December versus 9% y-o-y in November.

Meanwhile, labour productivity in this sector improved slightly to 2.5% y-oy in the fourth quarter of 2018 (4Q18), from 2.2% y-o-y in 3Q18, he added.