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15/05/2020

Central Bank of Malta Quarterly Review – Second Issue 2020

The Central Bank of Malta has published the second issue of its Quarterly Review for 2020. This edition analyses economic and financial developments in Malta and abroad during the last quarter of 2019. The information presented, therefore, does not yet reflect the economic impact of COVID-19.

The Review notes that the pace of economic activity accelerated in the fourth quarter of 2019, with real gross domestic product (GDP) rising by 4.4% in annual terms, following a 3.0% increase in the preceding quarter. Faster growth was underpinned by a strong rise in net exports as the contribution of domestic demand broadly halved. Annual GDP growth in Malta during the last quarter of the year was more than four times that recorded in the euro area. 

Potential output growth eased to 5.0%, from 5.3% in the third quarter, but remained relatively elevated from a historical perspective. The positive output gap – measured as a four-quarter moving average – narrowed during the quarter under review and remained below levels seen in 2015 and 2016. 

Meanwhile, the Bank’s Business Conditions Index (BCI) declined during the final quarter of 2019. The index remained very close to its long-run average value of 0.0, although it began to show slightly below-average conditions.

The labour market remained robust, as employment grew further and the unemployment rate declined. According to the Labour Force Survey, the unemployment rate fell to 3.2% from 3.4% in the preceding quarter and 3.6% recorded a year earlier. Hence, unemployment in Malta remained well below the average rate for the euro area, which stood at 7.4%, and below the Bank’s structural measure of 4.0%. 

Annual inflation as measured by the Harmonised Index of Consumer Prices (HICP) moderated to 1.3% in December from 1.6% three months earlier, largely driven by slower growth in the prices of food and a small decrease in the prices of non-energy industrial goods. Core inflation, which excludes the most volatile components of the HICP, edged down marginally to 1.3% in December. Annual inflation based on the Retail Price Index (RPI), which only takes into account expenditure of Maltese residents, eased to 1.2% in December. 

With regard to public finances, the general government surplus remained broadly in line with the surplus recorded in the corresponding period a year earlier. When measured on a four-quarter moving sum basis, the surplus-to-GDP ratio remained stable at 0.5%. During the fourth quarter of 2019, the general government debt-to-GDP ratio declined to 43.1% from 43.4% at end-September. Net financial worth as a share of GDP also improved, as a large drop in financial liabilities outweighed a decline in the financial assets held by government. 

The Review presents an overview of the monetary policy decisions taken by the Governing Council of the European Central Bank (ECB). During the fourth quarter of 2019, the Council maintained its accommodative monetary policy stance. However, in March 2020, the ECB announced a comprehensive package of monetary policy measures in response to the major economic shock imparted by the spread of COVID-19.

The Review presents an update of the Bank’s estimates of inflation persistence. It also summarises the main results from a study on wealth effects on consumption in Malta based on household level data from the 2017 Household Finance and Consumption Survey (HFCS). Additionally, this edition reports on the results for Malta of the 2019 European Investment Bank Group Survey on Investment and Investment Finance.

The second issue of the Quarterly Review for 2020 is available on the Bank’s website. 

QR 2020:2 - Infographic

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