September economic update shows business growth slightly below long-term average

The Central Bank of Malta has released its September Economic Update, revealing that annual growth in business activity remained slightly below its long-term average. According to the Bank’s Business Conditions Index, business activity in August was broadly unchanged from July, suggesting stability but highlighting that growth continues to lag behind historical norms.

Despite the overall business growth slowdown, other economic indicators offered mixed signals. The European Commission’s economic sentiment indicator and the employment expectations indicator for Malta both improved in August, though they still fell short of long-term averages. This suggests cautious optimism, with businesses and employers expecting gradual improvements in the months ahead.

Price expectations showed a decline across most sectors, with the largest decreases observed in the services and retail sectors. However, consumer price expectations remained stable, indicating ongoing pressure on household costs.

Activity levels across sectors were mixed: industrial production and retail trade both contracted in July compared to the previous year, while services production saw an acceleration in June. Meanwhile, Malta’s unemployment rate remained low from a historical perspective, experiencing a marginal drop compared to the previous month and remaining stable compared to the same period last year.

In the real estate sector, residential construction permits issued in July fell below last year’s levels. However, in August, the number of promise-of-sale agreements surpassed those of a year earlier, while the number of final deeds of sale decreased. This points to a complex real estate market, with mixed signals on buyer activity and finalised transactions.

The financial sector also saw varying trends. Deposits by Maltese residents grew at a faster rate during the 12 months leading up to July, suggesting increased savings. On the other hand, while credit to residents remained strong, the pace of growth slowed, driven by smaller increases in lending to both the general government and other residents.

Inflationary pressures edged up slightly in August. The annual inflation rate based on the Harmonised Index of Consumer Prices (HICP) rose to 2.4 per cent, with Malta’s inflation rate exceeding the euro area average. However, inflation excluding food and energy costs stood at 2.3 per cent, well below the euro area figure, reflecting Malta’s lower underlying inflationary pressures.

In positive news for government finances, the Consolidated Fund recorded a surplus in July. This was driven by increased government revenue coupled with a decline in expenditure, representing an improvement from a deficit recorded in the same period last year.

Overall, Malta’s economic landscape shows stability in some areas, such as employment and government finances, but mixed outcomes in business activity and inflation, as well as continuing challenges in certain sectors like industrial production and retail trade.