Central Bank of Malta publishes the fourth issue of its Quarterly Review for 2021

Last Updated on Wednesday, 10 November, 2021 at 9:30 am by Andre Camilleri

The Central Bank of Malta has published the fourth issue of its Quarterly Review for 2021, which analyses economic and financial developments in Malta and abroad during the second quarter of 2021.

In the second quarter of 2021, economic activity continued to be affected by the COVID-19 pandemic and associated containment measures, although these were less stringent than a year earlier. Real GDP increased by 13.4% over the corresponding quarter of 2020. This followed a contraction of 1.3% in the previous quarter. Notwithstanding the recent increase, the GDP level still stood 3.6% below that which prevailed in the second quarter of 2019. On an annual basis, GDP growth was driven by domestic demand and to a lower extent, net exports. Sector data show that the expansion was primarily driven by the services sector, especially the sector comprising wholesale and retail trade, transportation, accommodation and related activities.  This sector however, continued to be severely affected by the pandemic, with its gross value added standing almost 35.0% lower than its level in the corresponding quarter of 2019.

Potential output growth rose marginally to 1.8% in the second quarter of 2021, from 1.9% in the previous quarter. The Bank’s estimate of the output gap narrowed but stood firmly in negative territory, as demand remained short of the economy’s potential, especially in tourism and entertainment-related sectors.

The Bank’s Business Conditions Index rose sharply in the second quarter of 2021, reflecting strong year-on-year increases in a number of variables, although economic activity levels remained below those prevailing before the pandemic. For example, the European Commission’s Economic Sentiment Indicator continued to recover from the trough recorded in 2020, standing above its long-term average and exceeding the level recorded just before the pandemic. This increase might reflect the easing of the COVID-19 restrictions and related improvement in activity as well as the high vaccination rate achieved during the quarter.

During the second quarter of 2021, the labour market continued to recover, with employment returning to pre-pandemic levels and unemployment falling further. According to the Labour Force Survey, employment and activity rates increased, standing above those prevailing in the second quarter of 2019 and only marginally below those recorded in the first quarter of 2020. The unemployment rate stood at 3.5%, lower than the 4.0% registered in the previous quarter, and the rate of 4.6% recorded a year earlier.  It also stood below the average rate of 7.9% in the euro area. The historically low jobless rate in Malta, in part reflects ongoing government COVID-19 support, as well as the recovery in demand.

Inflation remained low during the quarter under review. Annual inflation as measured by the Harmonised Index of Consumer Prices stood at 0.2% in June, up from 0.1% in March. This marginal increase was mainly driven by faster growth in the prices of unprocessed food and non-energy industrial goods. Annual inflation based on the Retail Price Index – which only takes into account expenditure by Maltese residents – rose from 0.4% in March to 1.5% in June.

During the second quarter of 2021, general government finances improved even though they remained in deficit. The general government registered a smaller deficit when compared with the corresponding quarter of 2020 as the increase in revenue outweighed that in expenditure. When measured on a four-quarter moving sum basis, the general government deficit stood at 8.6% of GDP in the second quarter of 2021 – down from 10.0% in the first quarter. Meanwhile, the general government debt-to-GDP ratio increased to 59.5% from 57.5% as at end-March 2021. As the stock of financial liabilities held by the government rose at a slower pace than the stock of financial assets, the net financial worth as a share of GDP improved in the quarter under review.

The Review also presents an overview of the monetary policy decisions taken by the Governing Council of the European Central Bank.  The Governing Council maintained its accommodative monetary policy stance during the second quarter of 2021. It confirmed that the Eurosystem will continue to conduct net asset purchases under the pandemic emergency purchase programme (PEPP) until at least the end of March 2022 and, in any case, until it judges that the coronavirus crisis phase is over.   In its June meeting, the Governing Council stated that it expected purchases under the PEPP over the following quarter to be conducted at a significantly higher pace than during the first months of this year. However, in recent meetings the Governing Council announced that this pace would be reduced, while the ECB President expressed the view that the PEPP will end at the end of March 2022.

Meanwhile, the Governing Council confirmed that net purchases under the asset purchase programme (APP) will continue at a monthly pace of €20 billion for as long as necessary to reinforce the accommodative impact of the ECB’s policy rates, and to end shortly before these rates begin to increase.  

The Review also presents a study of methods used to assess the timing of the Maltese business cycle. Furthermore, it looks at recent growth in the professional, scientific, technical, administrative and support service activities sectors.  In addition, it carries out an analysis of the volume and value of payment transactions effected at point of sale terminals in Malta. 

The latest issue of the Quarterly Review for 2021 is available on the Bank’s website

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