News - News Releases 2019


Central Bank of Malta Quarterly Review – Third Issue 2019

The Central Bank of Malta has published the third issue of its Quarterly Review for 2019, which analyses economic and financial developments in Malta and abroad during the first quarter of 2019. This issue also includes an analysis of the contribution of small and medium-sized enterprises to the Maltese economy.  Additionally, the Review presents gravity model equations to explain the historical development of goods export growth in Malta over time.  Finally the Review carries an analysis of the effects of the recent pension reform and the influx of foreign workers on Maltese labour market participation rates. 

As regards economic developments, the Review notes that the Maltese economy grew at a more moderate pace during the first quarter of 2019, with real gross domestic product (GDP) rising by 4.9% in annual terms, following a 7.6% increase in the preceding quarter. Growth was almost five times the rate recorded in the euro area as a whole.  The economic expansion was entirely driven by domestic demand as the contribution of net exports was negative.

Potential output growth also moderated, going to 5.2% during the first quarter of the year, from 5.5% in the fourth quarter of 2018.  The positive output gap, measured as a four-quarter moving average, narrowed marginally during the quarter under review.  Although the degree of overutilization of the economy's productive capacity exceeded that in the same quarter of 2018, it remained well below levels seen in 2015 and 2016. 

The Bank's Business Conditions Index fell during the first quarter of 2019 compared with the preceding quarter, but continued to indicate above-average conditions. The latest estimates continue to suggest that economic conditions are broadly stable, although at lower rates than the exceptional levels seen in the recent past. 

Labour market conditions remained favourable, as employment grew strongly while the unemployment rate fell compared with the preceding year.  According to the Labour Force Survey, the unemployment rate stood at 3.5% in the first quarter of 2019, lower than the 3.9% recorded a year earlier and unchanged from the fourth quarter of 2018. A fall in the unemployment rate was registered notwithstanding a further increase in labour market participation rates and rising foreign employment.

Annual inflation as measured by the Harmonised Index of Consumer Prices (HICP), stood at a moderate 1.3% in March, slightly up from 1.2% in December, but below HICP inflation in the euro area at 1.4%.  This pick-up was largely supported by faster growth in services prices, which offset weaker dynamics in the other components.  Meanwhile, inflation based on the Retail Price Index (RPI), which only takes into account expenditure by Maltese residents, accelerated to 1.9%, from 1.5% in March.  In contrast, the Bank's core measure of inflation, which excludes the more volatile components of the HICP index, eased to 1.0% by the end of the first quarter, suggesting that the overall rate is partly being supported by strong growth in a smaller number of components. 

Producer cost inflation eased during the quarter under review, as annual growth in the Producer Price Index eased to 2.1% in March, from 3.8% three months earlier.  Similarly, Malta's unit labour cost index, as measured on a four-quarter moving average basis, grew at a slower pace.  Meanwhile, after a prolonged period of increases, Malta's Harmonised Competitiveness Indicators contracted during the first quarter of the year, signalling an improvement in Malta's international competitiveness. 

The surplus on the current account of the balance of payments narrowed when compared with the same quarter a year earlier, on account of a wider merchandise trade gap as well as higher net outflows related to primary and secondary income. When measured as a four-quarter moving sum, the current account balance was equivalent to 7.7% of GDP. This stood below the Bank's measure of the cyclically-adjusted measure, which was estimated to have reached 8.9% of GDP.  This indicates that Malta's current account surplus largely reflects structural factors. 

With regard to public finances, the general government deficit widened when compared with the first quarter of 2018, as the increase in primary expenditure offset that in revenue.  When measured as a four-quarter moving sum, the general government balance remained in surplus and stood at 1.9% of GDP, marginally down from 2.0% of GDP in December 2018.  Meanwhile, general government debt as a share of GDP rose by 0.7 percentage point to 46.6%, partly reflecting a build-up in financial assets.  

Maltese residents' deposits with monetary financial institutions operating in Malta expanded at a faster pace during the first quarter of 2019.  Meanwhile, growth in credit picked up, mainly reflecting faster growth in credit to residents outside general government.  Growth in mortgage loans to households and lending to non-financial corporations (NFC) remained strong.  According to the Bank's Financial Conditions Index (FCI), financing conditions were broadly neutral from a historical perspective during the first quarter of the year, and improved considerably when compared with the preceding quarter.

The Review presents an overview of the monetary policy decisions taken by the Governing Council of the European Central Bank (ECB).  During the first quarter of 2019, the Council continued with its accommodative monetary policy stance. The interest rates on the main refinancing operations, on the marginal lending facility and on the deposit facility were kept unchanged. The Council reiterated that it expected key ECB interest rates to remain at their present levels at least through the end of 2019 and in any case for as long as necessary to ensure the continued sustained convergence of inflation at levels below but close to 2% over the medium term.  On 6 June, the Governing Council extended this commitment through the first half of 2020.

In March, the Governing Council also reaffirmed its intention to reinvest in full the principal payments from maturing securities under the Programme for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.

The Governing Council further announced that it will also launch a new series of seven quarterly targeted long-term refinancing operations (TLTRO-III) starting in September 2019 and ending in March 2021, each with a maturity of two years. The Council also extended the full allotment procedure for its lending operations at least until the end of the reserve maintenance period starting in March 2021.

The third issue of the Quarterly Review for 2019 is available on the website of the Central Bank of Malta. 

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