Significant rise in government expenditure and large drop in revenue

Most of the data reported in the latest issue of the ‘Economic Update’ refer to June and thus reflect the impact of the lifting of restrictive measures related to COVID-19 as from May.

However, the latest data for the European Commission’s Economic Sentiment Indicator and the Central Bank’s Business Conditions Index refer to July. Meanwhile, tourism data for April, May and June have not been published by the National Statistics Office as the airport and seaport were closed in those months.

In July, the Central Bank of Malta's BCI improved slightly when compared with the previous month, suggesting that economic conditions may have reached their trough. However, the index remained significantly below its long-term average.

The ESI edged up when compared with the previous month, while remaining well below pre-pandemic levels. The increase in the ESI mostly reflects improved sentiment in the services sector and in industry. Sentiment also improved in the construction sector and among consumers, but reached a new historical low among retailers. The below average reading for the overall ESI mainly reflects weaker than usual sentiment in services and industry. In all other sectors, sentiment is either above or only marginally below the long-term average.

In June, the volume of retail trade and industrial production fell in annual terms, although the rate of contraction was smaller when compared to that in May. Annual growth in development permits for both commercial and residential purposes remained negative, though the number of residential permits issued since the start of the year remains above the historical average.

The number of registered unemployed and the unemployment rate fell when compared with the preceding month; with the latter remaining relatively low from a historical perspective.

Consumer prices edged up marginally in June but inflation remains at low levels. The annual inflation rate based on the Harmonised Index of Consumer Prices (HICP) rose to 1% in June, from 0.9% in May, while inflation based on the Retail Price Index (RPI) stood unchanged at 0.7%.

The publication also looks at public finance developments and notes that the deficit on the cash-based Consolidated Fund widened significantly compared with a year earlier, reflecting a significant rise in government expenditure and a large drop in revenue.