With so many of us now back from enjoying our annual post-Santa Marija break, it is not surprising that the latest Economic Update issued by the Central Bank of Malta passed relatively unnoticed. And yet, this technical report had a very important piece of news within it.
While cautioning that certain parts of the economy were still operating well below their pre-pandemic level, its Business Conditions Index (BCI) reached a very important threshold. According to the Bank’s economists “the latest readings of the BCI indicates that the economy is expanding at a similar pace to that seen before the pandemic”.
In fact, a look at the Chart included in this publication suggests that business conditions are the best observed since 2017. One has to remember that in 2017 our economy was growing nearly at double digit rates. This is surely one of the most encouraging signals we have had in recent months.
This explains why the Central Bank has opted to revise upwards its economic forecasts for Malta, both for this year and for the next. The pace of the economic rebound appears to have surprised the Bank’s economists. In their update, they, in fact, note that there are “large annual percentage changes for several indicators”.
European Commission surveys show that economic sentiment remains above its long-term average. Sentiment was positive in industry and services as well as among consumers.
Activity in the residential property market remained brisk. Residential property transactions continued to be significant in July, with the number of final deeds rising on an annual basis, while that of promise-of-sale agreements eased somewhat but remained above pre-pandemic levels.
In June, industrial production rose at a faster annual rate compared with a month earlier and was well above the level seen in 2019. The volume of retail trade continued to rise, with its level only marginally below that observed two years ago. The number of commercial permits rose slightly in annual terms while those of residential permits fell.
In June, industrial production rose at a faster annual rate compared with a month earlier and was well above the level seen in 2019.
The number of registered unemployed persons dropped yet again. The unemployment rate is virtually at its pre-pandemic level, and well below its historical average.
Maltese residents’ deposits with local banks expanded at an annual rate of 6.5% in June, following an increase of 6.3% in the previous month. Also in June, the deficit narrowed sharply when compared with a year earlier, reflecting an increase in government revenue and a decline in government expenditure. Government revenue is now in many income streams well above its pre-pandemic level.
The Economic Update also includes data on recourse to the moratorium on loan repayments offered in response to COVID-19. By the end of June these amounted to just 1.0% of related outstanding loans, or seven times less than its peak last year. At the same time, it appears that reliance on new loans guaranteed by the Malta Development Bank is decelerating such that less than three-fifths of the scheme’s target size has been utilised.
Tourism and foreign demand have not as yet joined the fray, as the pandemic continues to adversely impact our trading partners and tourist source markets. However, all indicators of domestic demand are going in one direction.
Government’s economic gambit, to sacrifice public finances to keep businesses and households going, appears to be paying off. The economy appears to be back on track, and with it, public finances are starting to recover. When the spread of the pandemic abroad starts to come under control, the positive push from domestic demand will be reinforced with external demand, and economic growth could reach even higher levels.