09/02/2023

Central Bank of Malta publishes its first issue of its Quarterly Review for 2023

The Central Bank of Malta has published the first issue of its Quarterly Review for 2023. This edition analyses in depth the economic and financial developments in Malta and abroad during the third quarter of 2022.

Economic activity during the third quarter of the year remained strong, with real GDP rising by 5.2%, although growth decelerated when compared to the previous quarter's exceptionally high 9.4% increase. The moderation in growth was largely underpinned by a smaller contribution from domestic demand, which however remained higher than that of net exports.

Potential output growth is estimated to have stood at 5.5% in the third quarter of 2022, which is slightly higher than in the previous quarter. The Bank's estimate of the output gap remained broadly constant at a positive 1.2%, indicating an over-utilisation of the economy's productive capacity. This reflects a strong pace of activity in the context of labour shortages and other supply bottlenecks.

The Bank's Business Conditions Index fell and stood closer to its historical average. This signals that the pace of economic activity has normalised from the exceptionally high rates registered a year earlier when the economy had started to recover from the pandemic.

The European Commission's Economic Sentiment Indicator fell below its long-term average and its level recorded in the second quarter of the year but remained marginally above that in the euro area.

Developments in the labour market remained positive. Employment levels and employment rates both rose in annual terms. Meanwhile, at 2.9%, the unemployment rate stood unchanged from that registered in the previous quarter, and below the rate of 3.3% recorded a year earlier. Malta's unemployment rate also remained well below the average rate of 6.6% for the euro area.

Price pressures continued to build up during the quarter. Annual inflation, as measured by the Harmonised Index of Consumer Prices, stood at 7.4% in September, above that of 6.1% recorded in June. Higher services inflation was the main driver behind the increase in inflation since June, although food and non-energy industrial goods inflation also contributed. Annual inflation based on the Retail Price Index - which only captures expenditure by Maltese residents - rose from 6.2% in June to 7.5% in September.

During the third quarter of 2022, the general government deficit narrowed in level terms when compared to the corresponding period of 2021. When measured on a four-quarter moving sum basis, the general government balance registered a deficit of 5.5% of GDP, lower than the 6.7% recorded in the second quarter of 2022. Meanwhile, the general government debt-to-GDP ratio declined from 53.9% to 53.2% as at end-September 2022. Government's net financial worth as a share of GDP also improved in the quarter under review, while remaining negative.

The Review also presents an overview of the monetary policy decisions taken by the Governing Council of the European Central Bank. The Governing Council started to raise its key interest rates in July and increased them again in September 2022. By the end of the third quarter, the interest rates on the main refinancing operations, on the marginal lending facility and on the deposit facility reached 1.25%, 1.50% and 0.75% respectively.

As previously announced, net asset purchases under the asset purchase programme (APP) ended as of 1 July 2022. Meanwhile, the Council reaffirmed its intention to continue fully reinvesting the principal payments from maturing securities purchased under the APP for an extended period of time and for as long as necessary to maintain ample liquidity conditions and an appropriate monetary policy stance.

In July, the Governing Council also approved a new Transmission Protection Instrument to help prevent disorderly market dynamics that could pose a serious threat to the transmission of monetary policy.

The Governing Council also reiterated its intention to reinvest the principal payments from maturing securities purchased under the pandemic emergency purchase programme until at least the end of 2024.

As euro area inflation continued to increase after September, the Governing Council raised the ECB's policy rates further in the last quarter of the year and announced additional measures to complement the normalisation of the monetary stance. In particular, the Council reviewed the terms and conditions applicable to TLTRO III from 23 November 2022. It also announced that from the beginning of March 2023 the Eurosystem will not reinvest all of the principal payments from maturing securities in the APP portfolio. The decline in the APP holdings will amount to €15 billion per month on average until the end of the second quarter of 2023 and its subsequent pace will be determined over time.

Besides the usual economic analysis, the Review presents the results of a study on the role of the construction and real estate sector in the Maltese economy, including indirect effects and linkages with other sectors. In addition, it reviews the relation between income, saving and wealth using data collected from the 2017 Household Finance and Consumption Survey. Finally, it presents an article on key trends and developments in the logistics sector using different data sources.

The first issue of the Quarterly Review for 2023 is available on the Bank's website.

Back to Archive