Economic Conditions Gradually Returning Towards Average Levels – Central Bank

14th November 2018

Growth was more than double that registered in the euro area as a whole.

The Central Bank of Malta’s Business Conditions Index suggests that economic conditions in Malta are gradually returning towards average levels, following the exceptionally high GDP growth rates seen in the recent past.

In the fourth issue of its Quarterly Review for 2018, the Central Bank noted that the Maltese economy retained its momentum during the second quarter of 2018, with real gross domestic product (GDP) rising by 5.9 per cent on an annual basis, after growing by 4.9 per cent in the first quarter of the year.

Economic activity was driven by domestic demand, as the contribution from net exports was negative. Growth was more than double that registered in the euro area as a whole.

On the other hand, potential output growth moderated slightly to 5.4 per cent during the June quarter, from 5.8 per cent in the previous quarter, although it remained relatively elevated from a historical perspective.

The positive output gap, measured as a four-quarter moving average, is estimated to have largely closed during the quarter under review, with the economy no longer operating above its productive capacity over the recent period.

The Bank's Business Conditions Index eased marginally to 0.7 during the quarter under review, but continued to indicate above-average economic conditions.

The labour market remained favourable, with strong increases in employment and further falls in the unemployment rate. According to the Labour Force Survey, the unemployment rate stood at 3.8 per cent in the second quarter of 2018, marginally lower than that recorded in the same period a year earlier.

Price pressures, measured by the Harmonised Index of Consumer Prices (HICP), rose to 2 per cent in June, in line with HICP inflation in the euro area. The current account of the balance of payments remained in surplus, although this narrowed when compared with the corresponding quarter of the previous year. The general government balance returned to a surplus during the second quarter of 2018.

Growth in Maltese residents' deposits with monetary financial institutions operating in Malta moderated further during the June quarter. At the same time, credit growth continued to pick up, as credit to residents outside general government grew at a faster pace.

The Review also recalls the latest monetary policy decisions taken by the Governing Council of the European Central Bank (ECB). During the second quarter of the year, the Council continued with its accommodative monetary policy stance, with interest rates on the main refinancing operations (MRO), on the marginal lending facility and on the deposit facility remaining unchanged and are expected to remain at their current levels at least through the summer of 2019 and as long as necessary.

The fourth issue of the Quarterly Review for 2018 is available on the website of the Central Bank of Malta.

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Economic Conditions Gradually Returning Towards Average Levels – Central Bank