PETALING JAYA: Malaysia enters 2026 with a relatively stable labour market and resilient domestic demand, but economists warn that deeper structural reforms and mounting external risks will ultimately shape the country’s economic trajectory.
Unemployment is unlikely to pose a major concern this year, according to Carmelo Ferlito, CEO of the Centre for Market Education, who said Malaysia is not facing a quantitative labour shortage, with jobless levels already at historic lows.
“We do not see quantitative problems in the labour market. Unemployment is at record-low levels, and this situation is unlikely to change,” he noted.
However, Ferlito cautioned that the real challenge lies in structural weaknesses, particularly under-employment driven by skills mismatches. He said mass graduation has pushed many workers into jobs below their qualifications, reflecting shortcomings in both technical and tertiary education.
“This issue can be addressed only by strengthening high-quality technical secondary education and by significantly raising the standard of tertiary education, which is currently too low,” he said.
Universiti Teknologi Malaysia Professor Dr Nanthakumar Loganathan echoed the view that Malaysia’s labour market is undergoing a transition, particularly after the Covid-19 pandemic. He said new job creation has increasingly been driven by digitalisation, especially in services such as transport, healthcare, tourism and online platforms.
“New jobs have been created and most of them are related to digital activities and online services. These digitally related jobs will have a significant impact on the country’s labour market in the future,” he said.
Nanthakumar said government-led upskilling initiatives, particularly under the National TVET Policy 2030, along with the Progressive Wage Policy (PWP), are expected to play an important role in strengthening workforce quality and supporting domestic growth.
He added that while the PWP is still in its early stages, its impact could become more visible over the coming years.
On household spending, both economists highlighted different pressure points. Nanthakumar said employment and wage growth alone may not be sufficient to sustain consumption if inflationary pressures persist.
“Even though employment issues have been solved and sufficient wage growth has taken place, inflation and rising prices remain the main challenge for household spending,” he said, pointing to higher production, transportation and labour costs.
He added that more targeted price-control measures and better supply chain analysis would be necessary to ease cost pressures.
Ferlito, meanwhile, warned against relying on policy-driven demand support, arguing that artificial stimulus risks creating boom-and-bust cycles. Instead, he said, sustainable growth would depend on easing business conditions, promoting competition and pursuing broader market liberalisation.
“The focus should be on structural reforms: easing the conditions of doing business, supporting business consolidation, enhancing free trade, and promoting domestic market openness,” he said.
On the currency front, views diverged more sharply. Ferlito said recent movements in the ringgit suggest exchange rates are increasingly driven by speculative forces rather than economic fundamentals, making long-term forecasts unreliable.
“In such a context, exchange-rate predictions are largely meaningless,” he said, noting that the ringgit has fluctuated widely without major structural changes in the economy.
Nanthakumar struck a more optimistic tone, describing the ringgit as relatively stable compared with many other Asian currencies. He attributed this to domestic political stability, rising foreign direct investment (FDI) and a recovery in tourism.
“Domestic political stability is the main reason investors choose Malaysia,” he said, adding that Johor, Selangor and Penang have continued to attract strong FDI inflows, particularly from Singapore, the United States and China.
Geopolitical tensions and global conflicts remain key external risks for Malaysia, given its status as a small, open and export-oriented economy. Ferlito said both military and commercial conflicts pose significant threats, particularly if they disrupt global trade flows or weaken major economies such as China.
“As a small, export-oriented economy, Malaysia is inherently vulnerable to external shocks,” he said.
Nanthakumar said regional political conflicts are not expected to pose a direct threat to Malaysia’s trade, though risks to intra-Asean trade should still be monitored. He also flagged uncertainty around global economic growth and potential policy shifts by major economies as risks heading into 2026.
Looking ahead, both economists stressed the need for structural reforms to strengthen resilience. Ferlito emphasised market liberalisation, free trade expansion and business consolidation, while Nanthakumar called for export market diversification and overseas investments to reduce over-reliance on FDI.
As Malaysia heads into 2026, economists agree that while near-term stability is likely, longer-term growth will hinge on how effectively the country addresses structural weaknesses and navigates an increasingly uncertain global environment.
