Pace of economic recovery slows down – Central Bank report

In November, the Central Bank of Malta’s Business Conditions Index was unchanged when compared with the previous month.

The stabilisation in the index suggests, the Central Bank noted, that the pace of recovery in economic activity has slowed down and that it has been adversely affected by the re-introduction of some containment measures.

In October, following a spike in COVID-19 cases which saw Malta register triple-digit daily increases, the Maltese Government announced the introduction of compulsory facemasks in all public places and workplaces, a curfew for entertainment venues to 11pm and limits on public gatherings.

By the end of October, the Government had announced the closure of all bars, which remain closed currently.

The Central Bank noted that although recent readings are higher than the lows for May and June, the Malta Business Conditions Index continues to signal low levels of economic activity, which reflect the weak economic environment which currently prevails in the context of COVID-19.

Malta Economic Sentiment Indicator

The Economic Sentiment Indicator deteriorated in November when compared with the previous month.

Confidence fell sharply in industry, and, to a more limited extent, in the services sector and among consumers.

These developments were offset by improved sentiment in the construction sector and among retailers. Sentiment remained negative in all sectors, bar the construction sector.

In October, industrial production rose marginally while the volume of retail trade fell at a slower pace in annual terms.

The number of development permits for commercial purposes fell, following an increase in September. Meanwhile, the number of residential development permits contracted at a slower pace when compared with a month earlier.

The labour market continued to show resilience. Indeed, the number of registered unemployed fell once again. The unemployment rate was unchanged from the preceding month, and remained relatively low from a historical perspective and compared to euro area Member States.

Inflation edged up marginally in October but remains at a low level. The annual inflation rate based on the Harmonised Index of Consumer Prices rose to 0.6 per cent, while inflation based on the Retail Price Index increased to 0.3 per cent.

In October, the deficit on the cash-based Consolidated Fund widened when compared with a year earlier as primary government expenditure was not fully offset by an increase in government revenue.

The publication also reports on recourse to the moratorium on loan repayments offered by domestic credit institutions to residents of Malta in response to COVID-19. The value of household and corporate loans subject to a moratorium at the end of October edged down further, to €1.4 billion, equivalent to 11.7 per cent of related outstanding loans, as businesses and households resumed their loan repayments, thus signalling a recovery in income flows.

In April, the Government launched the Malta Development Bank COVID-19 Guarantee Scheme, to guarantee new loans for working capital granted by credit institutions to businesses impacted by the pandemic. As at end October, 478 facilities ­- corresponding to total sanctioned amounts of €351.5 million ­- were approved.

Most of the data reported in this issue of the Economic Update refer to October 2020 and reflect the resurgence of COVID-19 cases and the introduction of additional containment measures. The latest data for the European Commission’s Economic Sentiment Indicator and the Bank’s Business Conditions Index refer to November 2020.