Despite Q3 2020 increase, year-on-year economic activity down significantly

According to the Central Bank of Malta, in the third quarter of 2020, despite a quarterly GDP increase of 7.4 per cent, economic activity was down significantly year-on-year.

Indeed, when comparing Q3 2020 with the same period the year before, GDP was down 9.9 per cent.

In its quarterly report released on Tuesday, the bank indicated that after a contraction in the first two quarters of 2020, the Maltese economy recovered some of its lost ground amidst a rebound in private consumption, which increased by over a fifth in the period.

The bank suggested that the annual drop in GDP was primarily driven by the declining strength of the service industry, which was hit hard by the pandemic.

Despite the relative increase seen in economic output, the labour market continued to suffer the impact of COVID as the unemployment level in Q3 2020 rose to 4.6 per cent, over 4.4 per cent in Q2 2020, and 3.7 per cent recorded the year before.

This was a stark improvement in comparison with EU-wide figures, which show that during the same period, the euro area unemployment rate hit 8.4 per cent.

Malta’s comparative labour market health, according to the bank, “reflects the highly supportive government measures and shorter working-time arrangements which mitigate the impact of COVID-19 containment measures on unemployment.”

The report also says that Malta’s potential output growth, which indicates its medium to long term levels of sustainable output in the economy and its rate of growth, was 1.9 per cent in Q3 2020, its lowest since 2003.

Inflation sunk during Q3, falling to 0.5 per cent from the 1 per cent recorded at the end of Q2.

With regards to public finances, in light of increased spending and decreased revenue, the Government balance of spending registered an increased deficit in Q3, as the deficit hit 8 per cent of GDP, against a deficit of 5.1 per cent in the quarter before.

Consequently, Government debt increased during the period, to constitute 53.7 per cent of Malta’s GDP.

The bank’s full report can be accessed here.