27/07/2023

Business conditions less positive but private sector still bullish - Business Dialogue Publication – Third edition of 2023

The latest business dialogue held between the Central Bank of Malta and non-financial corporations shows that in the second quarter of 2023, the net share of firms reporting better business conditions declined when compared to the previous quarter. It stood at 34%, down from 41% in the first quarter of the year.

Looking ahead, expectations about business conditions are slightly less positive when compared to the previous round of contacts. A net 46% of firms expected an improvement in short-term business activity. This compares with a net share of 48% registered in the previous quarter. In his comments, the Bank's Governor Professor Edward Scicluna stated that, "Our business dialogue for the second quarter of this year tells us that the private sector is still bullish towards further investment and employment in spite of deteriorating business conditions and rising input costs".

In view of the improved supply chain conditions, the net share of firms reporting cost pressures have eased but remain elevated from a historical perspective. Indeed, a net 62% of contacts reported that input prices have increased in recent months, marginally lower than 64% in the previous period.

When asked to comment on unit cost expectations over the next 12 months, most firms expected these to remain stable or increase further. However, the high level of global uncertainty prevented several others from passing a firm judgement.

The net share of firms reporting higher selling prices stood at 53% in the second quarter of the year, up from 42% in the previous quarter. Increases in input and selling costs were more prevalent in the wholesale and retail sector.

In the quarter under review, the net share of firms planning to invest more increased from 48% to 62%. The predisposition to invest increased in all sectors, except the real estate and construction sector. Additional responses on the main sources of financing investments reveal that almost half of the firms interviewed claimed that investments are intended to be self-financed, while 17% said that they will be financed through bank facilities only. Moreover, few companies reported higher cost of financing, and this was mostly in the form of higher bank charges rather than higher interest rates.

The net share of firms planning to increase their staff complement increased by 15 percentage points, to a net 61%, with this share highest among trade and services companies. Companies have continued to express concerns about labour and skill shortages and pressures to increase wages.

The full publication is available here. The business dialogue survey can also be accessed in a new and interactive way through its dedicated dashboard.

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