CBM’s Economic Update

Most of the data reported in this issue of the Economic Update refer to July and thus reflect the impact of the lifting, as from May, of restrictive measures related to COVID-19. However, the latest data for the European Commission’s Economic Sentiment Indicator and the bank’s Business Conditions Index refer to August. As from 19 August, some containment measures were re-introduced, affecting the entertainment sector.

Inbound tourism data for July were collected and published as the airport and seaport were reopened. With effect from 22 August, an amber list was added to the red and green travel lists, which means that tourists travelling from the countries on the list must present a negative COVID-19 test result before boarding.

In August, the Central Bank of Malta’s Business Conditions Index improved slightly when compared with the previous month. However, the index remained significantly below its long-term average, reflecting the exceptional economic environment triggered by COVID-19.

The Economic Sentiment Indicator edged up when compared with the previous month, while remaining well below pre-pandemic levels. The increase in this indicator mostly reflects improved sentiment in the services sector and in industry and, to a lesser extent, among retailers. By contrast, confidence fell in the construction sector and among consumers. Sentiment remained negative in all sectors.

In July, the volume of retail trade and industrial production fell in annual terms, though at a slower rate when compared to that in June. Annual growth in development permits for both commercial and residential purposes remained negative, though the number of residential development permits issued since the start of the year remained 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.

Inflation remained at low levels in July as growth in consumer prices decelerated. The annual inflation rate based on the Harmonised Index of Consumer Prices fell to 0.7% in July, from 1% in June, while inflation based on the Retail Price Index edged down marginally to 0.6%.

Compared to the surplus observed a year earlier, in July, the cash-based Consolidated Fund recorded a deficit, reflecting the impact on revenue from the slowdown in economic activity due to the global spread of COVID-19 and to the expense associated with ongoing government support measures to mitigate the economic effects of the pandemic.

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 June edged up to €1.8bn, equivalent to 16% of related outstanding loans. In April, 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 July, 340 facilities – corresponding to total sanctioned amounts of €238m – were approved.

This edition of the Economic Update also carries an analysis of the impact on Malta’s manufacturing sector of the recent appreciation of the euro against the US dollar.