Economic sentiment edges up but sentiment in retail and services declines

During the first quarter of 2018, the economic sentiment indicator edged up to 121, from 120 in the preceding quarter, thus remaining well above its long-term average of 100

Sentiment improved among consumers and within industry and was broadly unchanged in construction. In contrast, sentiment declined within the retail and services sectors, though here too it remained high from a historical perspective.

This is the gist of the business and consumer surveys carried by the latest issue of the Central Bank’s Quarterly Review, issued yesterday.

During the first quarter of 2018, the ESI for Malta remained higher than that in the euro area, which averaged 114.

Consumer confidence increases significantly

The consumer confidence indicator rose to 26 in the first quarter of 2018, from 17 in the preceding three-month period, with all of the indicator’s components reaching the highest reading since the survey has been conducted in Malta.

However, almost half of the improvement recorded in this quarter can be attributed to higher savings expectations.

Additional survey data suggest that on balance, a larger share of consumers anticipated a rise in inflation in the twelve months ahead.

At the same time, the share of consumers intending to reduce major purchases over the subsequent 12 months increased.

Industrial confidence improves

Confidence in the industrial sector rose to 14 in the first quarter of 2018, from 11 in the preceding quarter, thus rising further above its long-term average of -3.

The rise in industrial sentiment was driven by both firms’ production expectations and their assessment of order books. During the quarter under review a small net share of respondents assessed order books to be above normal for the season. Meanwhile, respondents reported higher than normal stocks of finished goods in the first quarter.

Looking forward, additional survey data show that a higher share of respondents expected to increase their labour complement. Furthermore, firms expected to increase their selling prices in the subsequent three months.

Confidence in the retail sector declines from a high level

Sentiment in the retail sector fell to 15, from 21 in the last quarter of 2017. Despite this decline, sentiment among retailers stood substantially above its long-term average of 2.

The decline in confidence was driven by the assessment of past business activity, as well as stock levels.

On balance, fewer firms considered that business activity had improved in the preceding three months, while more firms assessed stocks levels to be above normal.

At the same time, the share of firms expecting an improvement in business activity in the months ahead was unchanged.

Additional survey data indicate that on balance, more firms expected employment to rise during the following quarter. Whereas in the fourth quarter of 2017, firms on balance anticipated selling prices to fall, in the quarter under review they expected a rise in selling prices.

Confidence in the services sector edges down

In the first quarter of 2018, the services confidence indicator fell to 33, from 36 in the preceding quarter. Nonetheless, it remained above its long term average of 23, with all the indicator’s components remaining positive.

The fall in confidence was mainly driven by easing demand expectations for the three months ahead.

Firms’ assessment of the business situation in the preceding months also declined slightly. In contrast, firms’ assessment of the evolution of demand in the past months edged up.

Confidence in the construction sector unchanged

Sentiment in the construction sector was 27, broadly unchanged from the last quarter of 2017. This is the highest level recorded since survey results for Malta became available.

Survey results show that a fall in the share of firms expecting higher employment for the months ahead was offset by an improved assessment of order books.

Additional survey data indicate that in the first quarter of 2018, more respondents, on balance, reported positive developments in building activity during the preceding three months. Overall the survey suggests that the construction sector has been increasingly meeting rising activity through higher utilisation of labour. Indeed, labour shortages remained one of the main factors limiting production in this sector.

Meanwhile, a smaller net percentage of firms anticipated a rise in selling prices in the subsequent three months.