Business dialogue: short-term expectations of activity less optimistic, investment plans on track

In the second quarter of 2022, business conditions improved, the Central Bank of Malta said on Friday as it released the findings of periodic meetings it holds with non-financial corporations to assess the economic and business landscape.

This improvement follows two quarters of softening, it noted.

Indeed, the net percentage of firms reporting an improvement in activity over the three months preceding the interview increased from 31 per cent in the first quarter of 2022 to 52 per cent in the second. During the quarter under review, Q2 2022, 64 per cent of firms contacted reported higher activity while 13 per cent reported a decrease.

Looking ahead, expectations about business conditions are less uncertain but also less optimistic compared to the previous round of contacts. In fact, 48 per cent of the firms interviewed reported that they expect business activity to increase over the next three months while 17 per cent anticipated a deterioration. Thus, a net share of 31 per cent expected an amelioration in near term business activity, down from 39 per cent in the previous quarter.

Firms continue to be adversely affected by supply-chain disruptions and cost pressures, which have remained elevated in the second quarter of the year.

Insights gathered from the contacts during the second quarter suggest that most companies were impacted by the war in Ukraine, mostly by higher import prices. Indeed, a net 77 per cent of contacts reported that input prices have increased. In part due to elevated cost pressures, a net 61 per cent of firms interviewed reported an increase in their selling prices. This was the highest net balance since the survey began.

In the second quarter of 2022, 92 per cent of respondents reported to have continued with their investment plans as scheduled, while five per cent reported postponement. The share of firms reporting that no investment was planned decreased to three per cent, compared to 18 per cent in the previous quarter.

In view of positive business conditions, a net 42 per cent of firms plan to increase their staff complement, up from 35 per cent in the previous quarter. This share is highest among services firms. Businesses have continued to express concerns about labour shortages and pressures to increase wages.

The full publication is available here.