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23/07/2021

Economic Update: Issue 07/2021

In June, the Bank's Business Conditions Index continued to signal an expansion in economic activity, as the economy continued to recover from the very low levels observed in 2020. European Commission surveys show that sentiment eased somewhat, but remained well above its long-term average and positive in all sectors, barring the retail sector.

The Bank's estimate of the COVID-19 Government Response Index - a composite indicator that summarises various containment, economic and health-related measures introduced in response to the pandemic - fell at the end of June from a month earlier but stood above that reported in the euro area. This decline mainly reflects the continued easing of restrictions.

In May, industrial production grew at a slower annual rate compared with a month earlier, while growth in the volume of retail trade accelerated in annual terms.

The number of commercial and residential permits contracted in annual terms after increasing a month earlier. As regards residential property transactions, in June the number of final deeds and promise-of-sale agreements rose at a slower pace on an annual basis. This increase reflects base effects from the declines experienced last year during the partial lockdown, as well as government schemes intended to support the property market.

In May, the number of registered unemployed persons fell compared with April and compared with a year earlier. The unemployment rate remained unchanged at 3.7% compared with April, and well below its historical average.

The annual inflation rate based on the Harmonised Index of Consumer Prices (HICP) rose marginally to 0.2% in May, while that based on the Retail Price Index accelerated to 1.3%. The difference between the two measures of inflation reflects technical factors related to the revision of HICP weights in 2021. HICP inflation remained at 0.2% in June.

The Economic Update also includes data 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 edged down further, to €151.2 million, equivalent to 1.3% of related outstanding loans and around 8.0% of the extent of the moratorium at its peak in July 2020. This suggests a recovery in income flows and, for some, the expiration of the moratoria period. By the end of May 2021, 601 new facilities for working capital and loan repayment purposes had been granted to businesses impacted by the pandemic under the Malta Development Bank COVID-19 Guarantee Scheme, corresponding to total sanctioned amounts of €451.3 million, or 58.0% of the scheme's target size.

The full Economic Update is available here.

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