05/05/2022

Central Bank of Malta Business Dialogue publication – Second edition of 2022

Meetings held between the Central Bank of Malta and non-financial corporations during the first quarter of 2022 show that:

• Overall business conditions have softened somewhat but remain positive.
• Short-term expectations about business activity improved.
• Investment plans have largely remained on track.
• Firms plan additional recruitment but continued to express concerns about labour shortages and wage pressures.
• Cost pressures have remained elevated and are partly reflected in higher selling prices.

In the first quarter of 2022, business conditions remained positive but have softened somewhat when compared to the final quarter of 2021. Indeed, the net percentage of firms reporting an improvement in activity over the three months preceding the interview decreased from 36% in the last quarter of 2021 to 31% in the first quarter of 2022. During the quarter under review, 48% of firms contacted reported higher activity, while 18% reported a decrease.

Looking ahead, expectations about business activity have improved, although uncertainty about future activity has increased too. In fact, 40% of the firms interviewed reported that they expect business activity to increase over the next three months, while 2% anticipated a deterioration. A net share of 39% expected an amelioration in near term business activity, up from 33% in the previous quarter.

Firms continue to be adversely affected by supply-chain disruptions and cost pressures, which have remained elevated in the first quarter of the year. Initial insights regarding the impact of the Russia-Ukraine conflict suggest some further intensification in supply disruptions and input price increases. Indeed, a net 80% of contacts reported that input prices have increased. In part due to elevated cost pressures, a net 38% of firms interviewed reported an increase in their selling prices.

In the first quarter of 2022, 74% of respondents reported to have continued their investment plans as scheduled, while 5% reported postponement, which marked an improvement from previous quarters. The share of respondents that cancelled investment plans increased marginally to 3%. The share of firms reporting that no investment was planned increased too, mainly due to a number firms having just completed significant investment in recent months.

In view of positive business conditions, a net 35% of firms plan to increase their staff complement, down from 38% in the previous quarter. This small decline was largely driven by services firms, offsetting improved employment expectations in industry and in the wholesale and retail trade sector. Firms have continued to express concerns about labour shortages and pressures to increase wages.

The full publication is available here.

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