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23/07/2020

Economic Update: Issue 7/2020

Most of the data reported in this issue of the Economic Update refer to May 2020 and thus reflect the impact of the beginning of the gradual relaxation of containment measures related to COVID-19 that became effective on 4 and 22 May. However, the latest data for the European Commission’s Economic Sentiment Indicator (ESI) and the Bank’s Business Conditions Index (BCI) refer to June 2020. Hence, these may reflect the impact of the further lifting of restrictive measures as of 5 June. Meanwhile, tourism data for April and May have not been published by the National Statistics Office as the airport and seaport were closed in those months.

In June, the Central Bank of Malta's BCI fell slightly when compared with the previous month, suggesting that economic conditions may have reached their trough but remain significantly below their long-term average and comparable to those in 2009.

The ESI was virtually unchanged when compared with the previous month as weaker confidence in services and industry was largely offset by improved sentiment in the retail sector and among consumers, with confidence in the latter returning above its historical average. Sentiment in the construction sector also edged up, though marginally. Nonetheless, the ESI remains well below the historical average.

In May, the volume of retail trade and industrial production fell in annual terms, although the rate of contraction was smaller when compared to that in April. Annual growth in development permits for both commercial and residential purposes remained negative, though the amount of residential permits remains above the historical average.

The number of registered unemployed and the unemployment rate edged up further, but remained relatively low from a historical perspective.

Consumer prices eased again in May. The annual inflation rate based on the Harmonised Index of Consumer Prices (HICP) decelerated to 0.9%, from 1.1% in April, while inflation based on the Retail Price Index (RPI) fell to 0.7%, from 0.8% in the previous month.

The publication also looks at public finance developments and notes that the deficit on the cash-based Consolidated Fund widened significantly compared with a year earlier, reflecting a significant rise in government expenditure and a large drop in revenue as a result of the impact of the COVID-19 pandemic.

It also reports on recourse to the moratorium on loan repayments offered by domestic credit institutions to residents of Malta in response to COVID-19. The value of household and corporate loans subject to a moratorium at the end of May was €1.6 billion, equivalent to 13.9% of related outstanding loans, a relatively small increase when compared with April, indicating that liquidity needs may have started to stabilise. Meanwhile, the Government launched the Malta Development Bank COVID-19 Guarantee Scheme (CGS) for the purpose of guaranteeing new loans granted by credit institutions for working capital purposes to businesses impacted by the pandemic. As at end May, 143 facilities corresponding to total sanctioned amounts of €68.5 million were approved.

The full Economic Update, which also reports on international trade and financial markets, is available here.

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