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15/05/2018

Central Bank of Malta Quarterly Review – Second Issue 2018

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

The Review also presents key results from the Survey on Access to Finance of Enterprises (SAFE) in 2017 as well as the estimation of fiscal multipliers using an extended version of the Bank's MEDSEA model. This edition also carries an article on inequality in Malta using the Survey on Income and Living Conditions (SILC) and a speech by Professor Charles Goodhart on central bank policies in recent years.

The Maltese economy continued to grow robustly during the last quarter of 2017, with real gross domestic product (GDP) rising by 4.3% on an annual basis, much faster than that registered for the euro area as a whole. The economic expansion was entirely driven by net exports. On the other hand, domestic demand contracted, as growth in private consumption was offset by negative contributions from government consumption and changes in inventories.

Labour market conditions remained favourable, with strong increases in employment and further reduction in unemployment. According to the Labour Force Survey (LFS), the unemployment rate reached an all-time low of 3.7% in the last quarter of 2017.

The annual rate of inflation, measured by the Harmonised Index of Consumer Prices (HICP), stood at 1.3% in December, marginally higher that the rate registered three months earlier. HICP inflation remained slightly below that in the euro area, which closed the year at 1.4%.

Monetary aggregates in Malta continued to rise during the fourth quarter of 2017. Residents' deposits with monetary financial institutions (MFIs) operating in Malta increased at a solid pace on a year earlier, driven by overnight deposits. Credit to residents of Malta moderated during the December quarter, mainly reflecting slower growth in credit to general government and a slightly faster contraction in loans to non-financial corporations. On the other hand, loans to households maintained a solid pace of expansion, unchanged from that recorded in September.

During the December quarter, the general government surplus increased significantly in annual terms, as government revenue outpaced government expenditure. When measured on the basis of a four-quarter moving sum, the general government reached a surplus of 3.9% of GDP, higher than the 3.3% recorded in the September quarter. General government debt, as a share of GDP decreased further, standing at 50.8% at the end of the year, from 53.4% at the end of September.

The Review presents an overview of the monetary policy decisions taken by the Governing Council of the European Central Bank (ECB). During the last quarter of 2017, the Council maintained an accommodative monetary policy stance in the context of subdued price pressures. The ECB's key interest rates were left unchanged and it continued to buy assets under its asset purchase programme (APP). The monthly pace of asset purchases was lowered to €30 billion from January 2018 until the end of September 2018. However, the ECB stands to increase the size and/or duration of the APP if the outlook becomes less favourable or if financial conditions become inconsistent with the desired adjustment in the path of inflation.

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

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