Optimism among businesses exceeds pre-pandemic levels

The European Commission’s monthly survey of households and businesses in Malta showed that in October Malta’s economic sentiment index reached 110. This is 10% better than the historical average of this index, and 28% better than the level observed in the same month a year ago. More importantly, this level of optimism is 4% better than that expressed in October 2019, that is before the pandemic started.

In each sector, economic sentiment was positive, and in most sectors, optimism is currently better than the historical average. This is a result that has been consistent for the last seven months.

Record level of bank deposits

The healthy state of firms is attested by the fact that they have a record level of deposits with local banks, at €3.6 billion. This is almost €2 billion more than the deposits held by businesses before the change in government in 2013. Very impressive is the fact that during the pandemic, businesses increased their financial savings by almost half a billion euros. This contrasts sharply with what had happened in the 2008 recession, when business deposits had fallen for a year, and at one point they were down by nearly a quarter of a billion euro.

The most recent European Commission business sentiment indicates that a majority of 26% of the factories interviewed said they had increased production in recent months. A majority of almost 40% of operators said they expect further growth in the coming months. So much so that these companies said they have around four months of guaranteed production in orders they have already received. 28% of factories are therefore anticipating that they will have to increase the number of workers they employ.

28% of factories are anticipating that they will have to increase the number of workers they employ.

Even more optimistic were operators in the services sector. A majority of 5% of these businesses reported improved activity in recent months. More than 11% expressed an expectation that demand will continue to rally in the coming months. As a result, almost half of companies in this area anticipate that they will need to hire more workers.

Even in the retail sector, sentiment is better than the historical average. A majority of a quarter of those interviewed told the Commission they expect an improvement in their activity in the coming months, and almost one in ten reported that they already have experienced an increase in orders.

In construction, a majority of one in three firms said they need more workers. This in a context that these operators have a backlog of work lasting for more than seven months. Despite this, a quarter of construction firms are anticipating that orders will continue to increase.

Household optimism soaring

While business optimism is high, confidence among households is also soaring. Maltese and Gozitan families, in fact, showed a degree of confidence that was last observed in July 2018. This optimism is confirmed by the record level of deposits households currently have with local banks. These deposits reached €15.2 billion at the end of September, or almost double the amount households had before the change in Government in 2013.

During the pandemic, families have saved almost €2 billion. This contrasts sharply with what happened in the 2008 crisis when household deposits had fallen for about 15 months and at one point were down by a fifth of a billion euro.

The Commission’s sentiment survey indicates that a majority of 12 % of households believe that their financial situation will improve further in the coming months. A majority of 17% of families said that at present they can afford to make large expenses.

Despite this, most families believe that they will manage to still save more. In Europe, by contrast, a majority of households say they cannot afford higher consumption, in light of their worries about rising unemployment and prices.

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