Business News

Economic sentiment down, reflecting rise in COVID-19 infections

19th November 2020

However, September’s unemployment rate registered an improvement over the preceding month

An Economic Update released today by the Central Bank reveals mixed responses in September and October to the ongoing COVID-19 pandemic, although both economic activity and confidence remain low.

The Bank’s Business Conditions Index for October was unchanged when compared with the previous month. Although recent readings are higher than the low estimate for June, the Index continues to signal low levels of economic activity.

The Bank reported that the European Commission’s Economic Sentiment Indicator fell when compared with the previous month, possibly reflecting the rise in COVID-19 infections and the announcement of additional containment measures in October.

Lower sentiment was largely driven by a significant decline in confidence in the services sector and, to a more limited extent, among consumers and in the construction sector.

In October, sentiment within the services sector decreased to -32.3, from -3.5 a month earlier. Following this decline, sentiment fell further below its long-term average of 20.0.

The fall in sentiment was largely driven by respondents’ assessment of demand and, to a lesser extent, of the business situation over the past three months. Participants’ expectations of demand also weakened in the month under review. Additional survey data show that the share of firms anticipating prices to fall in the months ahead more than doubled when compared with September.

By contrast, sentiment improved in industry and among retailers. Nonetheless, confidence remained negative in all sectors.

In September, industrial production and the volume of retail trade fell in annual terms. The number of development permits for commercial purposes stood above their level a year earlier. By contrast, the number of residential development permits contracted, following an increase in the previous month.

The number of registered unemployed and the unemployment rate fell when compared with the preceding month, with the latter remaining relatively low from a historical perspective.

Inflation remained low and eased further in September. The annual inflation rate based on the Harmonised Index of Consumer Prices closed the third quarter at 0.5 per cent, while inflation based on the Retail Price Index edged down to 0.2 per cent.

In September, the deficit on the cash-based Consolidated Fund widened when compared with a year earlier, reflecting the impact on revenue from lower economic activity due to the global spread of COVID-19, and the impact of ongoing government support measures to mitigate the economic effects of the pandemic.

The publication also reports on recourse to the moratorium on loan repayments offered by domestic credit institutions to residents of Malta in response to COVID-19. The value of household and corporate loans subject to a moratorium at the end of September fell to €1.8 billion, equivalent to 15.6% of related outstanding loans, as some businesses outside the accommodation sector as well as households resumed their loan repayments.

In April, the Government launched the Malta Development Bank COVID-19 Guarantee Scheme, to guarantee new loans for working capital granted by credit institutions to businesses impacted by the pandemic. As at end September, 453 facilities ¬- corresponding to total sanctioned amounts of €343.7 million ¬- were approved.

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Economic sentiment down, reflecting rise in COVID-19 infections