Sentiment

As usual, the monthly issue of the Central Bank’s economic update, gives us an update on the business and consumer sentiment.

In February, the European Commission’s Economic Sentiment Indicator (ESI) for Malta decreased to 89.0, from 97.6 in January. As a result, sentiment fell further below its long-term average of around 100.0, estimated since November 2002. It also stood below the euro area average of 95.4. In month-on-month terms, sentiment deteriorated further in industry. It also weakened in the retail and services sectors, while remaining positive. By contrast, sentiment improved among consumers and in the construction sector.

The decrease in the overall sentiment in February was almost entirely driven by the developments in industry. Sentiment in industry, and to a lesser extent in the services sector, stood below its long-term average.

In February, sentiment in industry declined sharply to -37.9, from -13.6 in January, thus falling further below its long-term average of -4.1. A significant deterioration could be observed across all three components of this index, but in particular in order book levels. Data by sector shows that the strongest negative responses were recorded in the printing sector and among firms involved in the manufacturing of electrical equipment.

Confidence in the retail sector decreased but remained above its long-term average of 0.4. It stood at 14.7 in February, down from 25.6 in the previous month. The recent fall in sentiment was largely driven by respondents’ weaker assessment of sales over the past three months. At the same time, and in contrast to January, retailers now assessed their stocks of finished goods to be above normal levels. These developments were partly offset by a slight improvement in participants’ expectations of business activity over the next three months.

The sentiment indicator for the services sector dipped further below its long-term average of 19.6. It averaged 13.1 in February, compared with 17.1 a month earlier, reflecting a deterioration in firms’ assessment of the business situation and of demand over the past three months. By contrast, their expectations of demand for the next three months stood more positive than a month earlier.

The sentiment indicator for the construction sector reached 14.8 in February, from 9.6 in January, thus rising well above its long-term average of -7.9.

Consumer confidence stood less negative in the month under review. It averaged -4.4, up from -12.1 in January, and thus rose above its long-term average of -10.2. The less negative sentiment in February mostly reflected an improvement in consumers’ expectations of the general economic situation, major purchases over the next 12 months and of their finances, over the next 12 months. The latter was the only sub-component which turned slightly positive in February.

This Economic Update also indicated that, in terms of month-on-month comparisons, price expectations declined across all sectors except for industry, with the most significant decreases observed among consumers and in the construction sector.