Economic update

Economy continued to grow at a sustained rate

Activity

The economy continued to grow at a sustained rate. Provisional estimates issued by the National Statistics Office indicate that the Gross Domestic Product for the first quarter increased by 6.5% in nominal terms when compared to a year earlier. In real terms, GDP went up by 4.4%. Strong domestic demand, reflecting an expansion in compensation of employees too, and export growth contributed to this performance.

Average real GDP in the euro area and EU stood at 0.4%.

Tourism also continued to be an important contributor to Malta’s economy. Total inbound visitors for the first six months of 2018 grew by 17.4% from a year earlier. Total nights spent increased by 17.8% while total expenditure increased by 11.6%. On the other hand, during the first half of the year, total cruise passengers stood at 252,604, a drop of 5.9% over 2017 as the number of cruise liners that visited Malta stood at 120, compared to 149 a year earlier.

The Index of Industrial Production, which measures economic activity in the quarrying, manufacturing and energy sectors, increased at an annual rate of 1.1% in June, reversing a declining trend. On the other hand, growth in retail trade, which is a shortterm indicator of final domestic demand, fell for the third consecutive month.

Labour market

In July, the number of persons registering for work stood at 1,828 decreasing by 26.9% when compared to the corresponding month in 2017. The registered unemployment rate in February stood at 1% of the labour supply.

The seasonally-adjusted unemployment rate published by Eurostat for Malta stood at 4% for July, down from 4.6% a year earlier. The rate for the euro area was 8.2% in July, stable compared with June and down from 9.1% in July 2017.

During the first quarter of 2018, Labour Force Survey estimates indicated an increase of 5.7% in employment when compared to the corresponding quarter of 2017. The average annual basic salary (excluding overtime, bonuses and allowances) of employees for the first quarter of 2018 was estimated at €18,643, marginally up from €18,535 a year earlier. The highest basic salary was recorded in Financial and Insurance Activities sector. Average annual salaries varied from €34,291 among managers to €12,922 among persons employed in elementary occupations.

Prices and cost ompetitiveness

In July, the annual rate of inflation as measured by the Harmonised Index of Consumer Prices was 2.1%, up from 2% in June mainly reflecting tourismrelated services. Consumer price pressures within the remaining subcomponents of the index remained contained.

Cost inflation, as measured by the Industrial Producer Price Index (PPI), remained strong in June, with annual growth jumping to 6.3% from 5.9% a month earlier, reflecting an increase in the price of intermediate goods.

Malta’s harmonised competitiveness indicators (HCI) continued to point towards further deterioration in international competitiveness in June on account of euro exchange rate movements and domestic cost pressures.

During the first quarter of this year, the Property Price Index (PPI) stood at 111.11, a rise of 5.2% when compared to the corresponding quarter of 2017. Provisional figures indicate that the main driver of the increase was the apartments’ price index, although the maisonettes’ price index also went up.

Government finance

In the first quarter of 2018, the seasonally adjusted general government balance-to-GDP ratio stood at 2.5%, slightly down from the 2.7% registered in the last quarter of 2017. Proceeds from residency and citizenship schemes continued to play an important contributor. On the other hand, at the end of the first quarter of 2018, the government debt-to-GDP ratio in stood at 50.4%, compared with 50.7% at the end of the fourth quarter of 2017.

The general government balance-to-GDO ratio in the euro area stood at -0.1% while the debtto-GDP ratio stood at 86.8%.

Sentiment

In July, the Central Bank’s Business Conditions Index rose over the previous month and stood at 0.8, indicating above-average conditions.

The Central Bank’s Economic Sentiment Indicator rose to 121, from 118 in the preceding month and remained above its long-term average of 101. Higher sentiment was registered across all sectors.

Looking ahead

The Central Bank’s latest projections foresee economic growth to remain strong from a historical perspective. Over the forecast horizon 2018-2020, the bank estimates that growth will remain above the 4% mark on account of stronger domestic and external demand. Due to this fast-economic growth, the labour market is projected to remain tight, with the unemployment rate remaining at the low level of 4.3%.

Annual inflation, based on the HICP, is projected to edge up marginally reflecting domestic wage pressures. With respect to public finance, projections for the government balance remain in surplus and for debt the debt-to-GDP ratio is projected to decline to around 40% by 2020.