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06/02/2018

Central Bank of Malta Quarterly Review – First Issue 2018

The Central Bank of Malta has published the first issue of its Quarterly Review for 2018, which analyses economic and financial developments in Malta and abroad during the third quarter of 2017.

The Review also presents a survey on business investment and investment finance in Malta. Other articles assess the macroeconomic impact of structural reforms in the energy sector, as well as developments in the manufacturing sector.

The Maltese economy continued to grow at a solid pace during the third quarter of 2017, with real gross domestic product (GDP) rising by 7.2% on an annual basis, almost three times the rate registered for the euro area as a whole. The economic expansion was driven by both domestic demand and net exports.

Labour market conditions remained favourable, with employment rising further and the unemployment rate reaching an all-time low of 4.0%.

The annual rate of inflation, measured by the Harmonised Index of Consumer Prices (HICP), stood at 1.2% in September, slightly higher than the rate of 1.0% registered three months earlier. HICP inflation remained below that in the euro area, which stood at 1.5% in September.

Monetary aggregates in Malta continued to grow at a steady pace during the third quarter of 2017. Residents' deposits with monetary financial institutions (MFIs) operating in Malta continued to increase at a solid pace on an annual basis, driven by overnight deposits. Credit to residents of Malta accelerated, mainly supported by faster growth in credit to general government and loans to households and a smaller drop in loans to non-financial corporations (NFCs).

During the quarter under review, the general government surplus increased significantly in annual terms, as the rise in revenue was more pronounced than that in expenditure. When measured on the basis of a four-quarter moving sum, general government recorded a surplus of 3.3% of GDP, higher than the 2.1% in the previous quarter. General government debt, as a share of GDP, decreased to 54.9% at the end of September, from 56.6% at the end of June.

The Review presents an overview of the monetary policy decisions taken by the Governing Council of the European Central Bank (ECB). During the third quarter, the Council maintained its accommodative monetary policy stance, leaving the ECB's key interest rates unchanged and committing to keep these rates at present levels for an extended period of time. Additionally, the Council intended to continue with its asset purchase programme (APP) until at least the end of December 2017. It also confirmed that net purchases will be made alongside reinvestments of principal payments from maturing securities purchased under the APP.

Following the cut-off date of the Quarterly Review, the Governing Council decided to reduce the rate at which to conduct the monthly net asset purchases from a monthly pace of €60 billion to €30 billion from January 2018. Such purchases will continue until the end of September 2018, or beyond, if necessary. The Council added that it is ready to increase the APP in terms of size and/or duration if the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation.

The first issue of the Quarterly Review for 2018 is available on the website of the Central Bank of Malta.

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