Malta leads Eurozone growth in Q3 2024, driven by strong domestic demand

CBM publishes Quarterly Review

During the third quarter of 2024, the Maltese economy maintained the highest rate of expansion in the euro area. Growth was driven by domestic demand, as net exports had a broadly neutral effect. When adjusting for imports, domestic demand remained the main driver of GDP growth.

The Bank’s estimate of the output gap remained unchanged from that of the second quarter, implying some degree of over-utilisation of the economy’s productive capacity.

The Bank’s Business Conditions Index edged down marginally in the third quarter of 2024 but remained slightly above its historical average. The European Commission’s Economic Sentiment Indicator fell and remained below its long-term average.

As from this edition, the Quarterly Review will start to include a brief commentary on the Bank’s Economic Policy Uncertainty Index, an indicator that monitors economic policy uncertainty by synthesising information gleaned from Maltese news portals. This index declined in the third quarter and remained well below its historical average.

Developments in the labour market remained positive. The unemployment rate remained low from a historical perspective. The labour market remained tight, as both the job vacancy rate and the labour tightness indicator increased. According to the Labour Force Survey, employment growth in Malta was higher than the euro area average while the unemployment rate was lower.

Consumer price pressures eased further during the third quarter of 2024. Annual inflation, as measured by the HICP, fell to 2.1% in September, while the measure excluding energy and food declined to 1.9%. Overall, headline HICP inflation stood higher than that recorded in the euro area, reflecting a higher contribution from energy and food inflation. By contrast, HICP excluding energy and food, was firmly below the euro area average.

In the third quarter of 2024, the general government deficit-to-GDP ratio narrowed when compared to the preceding quarter, while the general government debt-to-GDP ratio declined. Both the Maltese government fiscal deficit and the debt-to-GDP ratio stood below the euro area average.

In September, the Governing Council of the European Central Bank lowered the deposit facility rate – the rate through which it steers its monetary policy stance – by 25 basis points, to 3.50%. Additionally, in September changes in the interest rate corridor which had been announced back in March 2024 became effective. The rate on the main refinancing operations and the rate of the marginal lending facility were decreased to 3.65% and 3.90%, respectively.

As inflationary pressures continued to ease, the Governing Council lowered the three key ECB interest rates by 25 basis points in October and again in December. In the latter meeting, whilst reiterating that it was not pre-committing to a particular rate path, the Governing Council dropped its restrictive bias with regard to policy rates.