Economic Outlook for Southeast Asia, China and India 2023 - Update

Labour markets in most Emerging Asian economies show signs of recovery

Emerging Asia’s labour markets are showing signs of steady recovery, supported by growing intraregional trade, recovery in international trade and a strong inflow of investments. International, regional, and bilateral trade initiatives continue to develop more efficient and cost-effective trade within Emerging Asia, which expands the export market and creates more jobs across different industries and along the supply chain.

The travel and tourism sector has also been an invaluable source of employment for several countries in Emerging Asia. In 2021, China recorded the highest total contribution of travel and tourism to employment, generating 73.31 million jobs, directly or indirectly (Statista, 2022). India and Indonesia place second and third, recording 32 million and 11 million jobs contributed by tourism, respectively (Statista, 2022). The Philippines, Thailand and Viet Nam follow close behind. The gradual reopening of domestic and international tourism in 2022 gave a significant economic boost to countries in the region. This was sustained by a strong recovery of the tourism sector in the first half of 2023. Tourism is expected to remain a significant source of employment, especially for countries such as Cambodia, Indonesia, Thailand, Malaysia, the Philippines, and Viet Nam. Domestic and intraregional travel are also on the rise throughout the region. The reopening of China, the region’s biggest source of tourists, will contribute to the rapid tourism expansion, and thus help to support employment.

Other industries are also driving the expansion of the services sector and boosting employment in the region. For example, services linked to growing sectors such as manufacturing remain robust. In addition, the acceleration of digitalisation has changed the services sector landscape in Emerging Asia. Digital technologies have helped develop and expand service industries linked not only to tourism but also to trade, transport, communication, financial services, real estate, and retail services, and this has further expanded the employment market. Robust domestic demand is expected to sustain expansion of the services sector, while the increasing tradability of services will also fuel its rapid rise.

Labour markets are also benefitting from the fact that the region is attracting substantial FDI due to its young and increasingly skilled population, low labour costs and better infrastructure supporting the workforce. The supply-chain reconfiguration of companies to protect their businesses from rising geopolitical tensions and international trade disruptions is driving the restructuring of production chains to ASEAN countries and India. As a result, FDI inflows in India, Indonesia, Malaysia, Philippines, Thailand and Viet Nam amounted to USD 1.3 trillion in 2022 and reached USD 352 billion in the first quarter of 2023. This has catalysed the expansion of businesses across the region, creating more jobs, particularly in electronics, textiles and the automotive sector.

Meanwhile, the unemployment rate has steadily declined for most major economies in the region and shows substantial improvement year-on-year. In India, the Philippines and Singapore, unemployment is below pre-pandemic levels thanks to country-level factors that underpin economic growth, fuelling a tighter labour market. India is experiencing the fastest GDP growth among the world’s major economies and will require more labour to meet the needs of its expanding economy. The country is relying on its large labour force and improved infrastructure to support the expansion of its labour market, especially in the manufacturing and services sectors. India’s services sector will remain resilient, buoyed by strong demand in retail trade, the logistics industry, software services, commercial real estate, and tourism. Anticipated large inflows of FDI will boost India’s manufacturing sector and generate more jobs in the near term and improve the overall employment environment in the long term. On annual terms, India’s unemployment rate is forecast to drop to 7.1% in 2023 from 10.5% in 2022.

Figure 10. Unemployment rate in selected Emerging Asian economies, Q2 2019 to Q2 2023 (%)

Note: Q1 2023 data for India, Malaysia and the Philippines.

Source: CEIC.

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Employment also continued to rise in ASEAN countries, where the labour market outlook is promising given an expanding middle class and a young, dynamic and increasingly well-educated population. ASEAN’s increasing integration in global supply chains is contributing to greater wage employment and highly skilled employment in some sectors. Within global supply chains, manufacturing accounted for the largest share of employment, while agricultural jobs are also increasing in share. Malaysia and the Philippines have posted increases in annual employment growth since 2021, while Singapore posted a strong rebound from its sluggish employment data in 2022. Notably, weak transmission of monetary policy in the Philippines limited the impact of interest rate hikes on private sector demand over the first half of the year. This translated into continued expansion of the job market in the country. Meanwhile, China’s annual employment growth declined by 5% in March along with a surge in youth unemployment, with its rate reaching a record high of 20.8% in May 2023. Some economies in the region – particularly those heavily involved in apparel and footwear manufacturing, such as Cambodia, Bangladesh, Myanmar and Viet Nam – are expected to experience a labour market deterioration as shipments fall.