Fewer businesses plan to increase staff as labour shortages and wage pressures continue to bite

While business conditions for the first quarter of 2022 remain positive overall, a net 35 per cent of firms surveyed by the Central Bank of Malta planned to increase their staff complement, down from 38 per cent in the last quarter of 2021.

The small decline was largely driven by services firms, which offset the improved employment expectations being felt 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 CBM said in its report on meetings held with non-financial corporations during the first quarter of 2022.

The CBM Business Dialogue publication summarises results obtained from meetings conducted by the bank’s economists with top-level representatives of corporations and institutions. These discussions take the form of a brief interview, whereby respondents can raise any topic they consider relevant for their organisation and allows the Bank to collect information that would otherwise be very difficult to obtain.

Unemployment

Indeed, Malta is experiencing historically low levels of unemployment, at around three per cent, while the number of foreign workers is at its highest point ever, numbering around 70,000 by the start of the year.

Business conditions

On general sentiment and business conditions, the CBM’s dialogue campaign found that overall sentiment remained positive in the first three months of the year, but “softened somewhat” when compared to the last quarter of 2021.

“The net percentage of firms reporting an improvement in activity over the three months preceding the interview decreased from 36 per cent in the last quarter of 2021 to 31 per cent in the first quarter of 2022. During the quarter under review, 48 per cent of firms contacted reported higher activity, while 18 per cent reported a decrease.”

Looking ahead

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

Supply chain and Russia

Firms continue to be adversely affected by supply-chain disruptions and cost pressures, the CBM found, 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 per cent of contacts reported that input prices have increased. In part due to elevated cost pressures, a net 38 per cent of firms interviewed reported an increase in their selling prices.

Investment plans

In the first quarter of 2022, 74 per cent of respondents reported to have continued their investment plans as scheduled, while five per cent reported postponement, which marked an improvement from previous quarters.

The share of respondents that cancelled investment plans increased marginally to three per cent. The share of firms reporting that no investment was planned increased too, mainly due to a number of firms having just completed significant investment in recent months.