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28/07/2021

Central Bank of Malta Business Dialogue publication – Second edition of 2021

Meetings held between the Central Bank of Malta and local firms during the second quarter of 2021, show as follows:

  • Overall business conditions have improved markedly.
  • Firms are also much more upbeat about future business conditions.
  • Investment plans have largely remained on track.
  • Firms have expressed higher demand for employment. Labour shortages, especially in some sectors, have become a major concern.
  • Firms have reported a surge in input prices, which in some cases has led to a rise in selling prices.

Overall business conditions turned positive during the second quarter of this year, for the first time since the beginning of the pandemic. A net share of 28% reported an amelioration in business conditions, compared to a net 34% that reported a deterioration in the previous quarter.  Indeed, around half of the firms reported higher activity, while one-fifth of contacts interviewed said that business activity worsened. Moreover, 30% said that business conditions remained unchanged.

During this period, the net share of firms reporting improved expectations more than doubled, to 33%. Around 40% of contacts said that they expect business activity to improve over the next three months. The same number of firms expect conditions to remain unchanged. Only 5% of the companies contacted expect some worsening. The share of respondents reporting that business prospects are uncertain remains elevated, though less so than in previous quarters. Uncertainty remains elevated especially in some manufacturing sub-sectors and in tourism- and entertainment-related services.

Around two-thirds of contacts reported that input prices increased recently, while the rest of the firms experienced unchanged input costs. The rise in prices for many raw materials and related inputs accelerated in recent months, given the rise in global demand and supply imbalances. Moreover, some firms noted a rise in global transportation costs. Consequently, the share of firms that reported higher selling prices almost doubled to 37%. However, just over a tenth of firms (particularly in the construction, wholesale and retail, and services sectors) offered discounts to attract demand.

The majority of firms contacted between April and June 2021 reported that their investment plans remain on track. Indeed, investment plans for around 70% of firms contacted continued as scheduled, with a further 15% reporting postponement. No respondents reported cancellation of investments in this round, but a non-negligible share of firms reported no planned investment.

The employment outlook looks more encouraging as a net 38% of firms plan to increase employment levels. In the first quarter of the year, by contrast, on balance firms expected a decrease in headcount. Nonetheless, issues with labour shortages have resurfaced.

The full publication is available here.

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