A worrying decline

This paper always pays serious attention to the results of the regular Central Bank survey of economic sentiment, both when the sentiment is getting better and also when it is in decline.

The result that only this paper saw fit to publish last week was rather worrying. The respondents to the CBM survey saw, in all, a decline in the economic growth of the country. And, as the chart reproduced above shows, this decline has been ongoing since Q3 of 2017, with a spurt in Q3 of last year.

It is now at lower than the European Area.

Now it has always been said that Malta’s remarkable growth path would moderate over time, after years when Malta’s growth was the pride of the nation.

But seeing it at such a close range leads to worry. It is also true, as the report said, that notwithstanding this fall, the Economic Sentiment Indicator remained above its long-term average of 100.1.

In particular, sentiment weakened in industry and services as well as among consumers. It only improved in the construction sector (not surprising considering the huge amount of construction that’s going on) and in the retail sector (as we also report in this issue).

The report says that industrial confidence edged down marginally, at -2.0 in the quarter under review (Q1), down from -0.9 in the previous quarter, lingering marginally above itslong-term average of - 3.0.

Production expectations, while still positive, weakened compared to Q4 of 2018. A higher share of respondents reported falling orders.

Two sets of results, retail and consumer sentiment, must be considered together. Although consumer confidence fell from 8.0 in Q4 of 2018 to 3.3 in Q1 of this year, it remained above its long-run average of -12.2.

Consumer expectations of major purchases over the next 12 months were the main driver behind the latest decrease. Also, respondents’ assessment of their past and future financial situation also weakened.

Respondents were also less optimistic about the general economic situation over the next year.

Fortunately, the results as regards the retail sector were more optimistic. The sentiment in the retail sector rose to 10.7 from 0.9 in the preceding quarter also exceeding the longterm average of 2.8. This rise in confidence stemmed from the firms’ assessment of business activity in the past three months and their expectations for the next three months.

However, one also needs to factor in what we report on the back page – that the highest yearly increases in the total retail trade volume were registered in Croatia (+7.4%), Lithuania and Romania (both +5.7%) and Malta (+5.6%).

The CBM report adds that a larger share of respondents still hold that their stock levels were above normal but that, on the other hand, a larger share of respondents expected employment to rise in the coming quarters.

And while expectations for order levels turned positive, the retailers’ price expectations have turned negative.

As already stated, confidence in the construction sector rose exponentially to 34.1 from 7.5 in the preceding quarter, exceeding by a wide margin its long-term average of -14.2.

But supplementary survey data indicate that, on balance, a larger share of respondents expect higher inflation in the next quarter, increasing labour shortages and, to a lesser extent, increasing financial constraints.

In the coming weeks, as

Budget 2020 is drawn up, the concerns exposed by this survey must be addressed. The private sector, too, must do its part and seek out higher growth.