Factories retrenching as output slips, minimum wage looms

By Lee Wei Lian

KUALA LUMPUR, Oct 12 — Manufacturers in Malaysia are shedding workers due to uncertainty over the global economy and the impending start of minimum wage next year, says RHB Research Institute.

RHB said in a report yesterday that in line with a slowdown in sales, the manufacturers retrenched 4,609 workers in August compared to a recruitment of 441 workers in July. Unemployment was 3.1 per cent in July, with an estimated two million foreign workers employed in the country.

“In line with the slowdown in YoY (year-on-year) sales, manufacturers were cautious and they retrenched some workers in August,” said RHB. “This was due to weakness in the global economy and compounded by the impending implementation of the minimum wage policy in early 2013.”

The research house warned that manufacturers could retrench more workers if the economic situation deteriorates as productivity gains — which is measured by sales per employee — slowed to 0.7 per cent in August from 4.3 per cent in July and 5.8 per cent in June.

It noted that wages per employee rose 4.6 per cent in August compared with 3.2 per cent in July and just one per cent in June.

RHB said however that stripping out seasonal factors and measured on a three-month moving average basis, wages per employee edged lower to 2.9 per cent year-on-year during the month, from 4.3 per cent in July which indicated that wage pressure is gradually dissipating after trending up in the first five months of the year.

“However, it could trend up again, on the back of an implementation of the minimum wage policy, which will take effect in 6-12 months, depending on the industry, from the date the Minimum Wage Order was gazetted on July 16,” said RHB.

The Najib administration had pushed for the introduction of minimum wage in a bid to lift salaries as part of efforts to make Malaysia a high-income nation.

Proponents of minimum wage say that it would make businesses and manufacturers more efficient and move them up the value chain by investing in high technology and more skills training rather than relying on cheap labour as in the past.

Critics however say that pay should be based on worker productivity and be flexible enough to respond to market conditions or it could otherwise result in job losses.

Manufacturing output slipped for the first time since September 2009 by 1.8 per cent year-on-year in August, after picking up to 6.0 per cent in July.

Manufacturing sales growth slowed to 1.8 per cent year-on-year in August, after moderating to 4.8 per cent in July, and compared with 6.3 per cent in June.

“This was in line with a drop in manufacturing production and exports of manufactured goods during the month, suggesting that the unabated weakness in the US and eurozone economies are crimping demand for the country’s exports of manufactured goods,” said RHB.

Industrial production dropped by 0.7 per cent year-on-year in August, marking the first decline in 13 months compared to a growth of 2.9 per cent in July and 3.7 per cent in June.

RHB said the drop reflected a fall in manufacturing production as well as a moderation of growth in electricity output, but was mitigated by a rebound in mining output.

It said that the weaker industrial activities in July-August suggest that economic activities will likely grow at a more moderate pace in the near term due to soft external demand exports amid uncertainties in the global economy.

RHB said that it expects real GDP to sustain growth at 4.6 per cent year-on-year in the third quarter although at a more moderate pace compared with 5.4 per cent in the second quarter, supported by the implementation of the various economic programmes and corridor projects as well as resilient consumer spending.

“Going forward, we expect global economic uncertainties to gradually clear out as time progresses,” said RHB. “This will likely help to lift the country’s exports in 2013.”

The Asian Development Bank (ADB) said last week that the Malaysian economy is expected to grow more slowly for the rest of the year due to weak global conditions, having achieved a higher than expected growth rate in the first half of 2012.

ADB projected a growth of 4.6 per cent overall this year for Malaysia and 4.8 per cent for next year on the assumption that world trade and growth will have improved..