Business News

Malta in the time of corona: NSO report on economy reveals depth of impact

26th November 2020

GDP down, but so are inflation, traffic, hours spent working

The COVID-19 pandemic has disrupted the global and local economy to no end, with reports detailing the impact of the virus emerging on an almost daily basis.

In the most comprehensive overview so far of the effect of the novel coronavirus on the Maltese economy in the first six months of the year, published by the National Statistics Office (NSO), the picture that emerges is of a country in a state of suspended crisis, as Government intervention has prevented the contraction in GDP from resulting in a significant increase in unemployment.

The report shows the extent of the slowdown in the tourism sector and trade, but also notes its impact on the number of newly registered vehicles on the roads and the number of road accidents.

Read below for an in-depth look at Malta’s economy in the time of corona.

Tourism

As expected, the closure of the Malta International Airport toward the end of March, resulted in a plunge in tourism-related activities. This was clearly evident in the number of resident and non-resident guests and the nights spent in collective accommodation.

During the first six months of 2020, the total number of guests – both residents and non-residents – in collective accommodation dropped from 947,475 to 321,729, making up slightly more than one third of the guests during the same period last year.

The 3-star type of accommodation suffered the largest decrease and saw the number of guests shrinking by 158,601, or 69 per cent.

These developments were most prominent in the second quarter and, between April and June this year, the total number of guests was down by 97 per cent to 17,157 from 575,265 in the same period of 2019.

The same scenario was noted in total number of nights spent by both resident and non-resident guests which, in the first six months of the year, were less than a third of those spent in the same period of 2019. Reasonably, the largest drop was registered during the second quarter of the year. While during the first three months of the year the total number of nights were down by 365,157 when compared to the same period last year, the second quarter saw a reduction of more than 2.7 million nights over the same quarter in 2019.

During the first half of this year, the Malta region saw a decrease of just over 70 per cent in the total number of nights spent by guests in both the 5- and the 3-star hotels, when compared to the same period last year.

Faring worse was the Gozo and Comino region where 3-star hotels registered a drop of almost 25,000 nights or 79 per cent, which was the largest percentage decline of the sector.

Other collective accommodation, which comprises guesthouses, hostels and tourist villages, also suffered a large decrease in the number of nights both in the Malta region and in the Gozo and Comino region. While the latter shrunk by almost 8,000 nights (70 per cent), the sector in the Malta region contracted by 200,559 nights or 65 per cent.

Gozo

Another development could be observed in sea transport between Malta and Gozo, brought about by the COVID-19 situation.

While there was an increase of 920 trips (almost eight per cent) during the first half of the year, the number of vehicles and the number of passengers registered a decline of 178,835 and more than one million, respectively, when compared to the same period last year.

This meant that the average number of passengers per trip decreased from almost 232 in the first half of 2019, to roughly 128 in the same half of 2020.

Comparing the second quarter of this year to last year’s, the largest drop was registered in the number of passengers travelling between the islands, which slid by 994,161 or 63 per cent, followed by vehicles with a decline of 38 per cent.

Trade

With regard to international trade, a trade deficit of almost €1,326 million was registered during the first six months of the year, representing a 39 per cent year-on-year decrease.

The improvement in the trade balance was a result of a sharper drop in imports by more than €1,015 million, as opposed to lower exports by just over €161 million, when compared to the first half of 2019.

Imports of Machinery and Transport Equipment slid by more than €758 million followed by a fall of €214 million in Mineral Fuels, Lubricants and related materials. Moreover, the exports of the latter declined by €174 million, being the main contributor to the fall in total exports.

Between January and June this year, the value of imports from the European Union stood at €1,473 million. This made up more than 51 per cent of the total imports. When compared to the same period in 2019, the value of imports from the Euro area slid by over five per cent and stood at €1,395 million, while imports from the United Kingdom registered a decrease of more than €857 million or nearly 81 per cent.

Exports to the European Union during the first half of the year reached €629 million, marking just over a 25 per cent decrease when compared to the first half of 2019. Exports to the Euro area also contracted by 25 per cent to €543 million.

Government income and expenditure

As expected, the COVID-19 pandemic had a negative impact on the main macroeconomic indicators, and this was felt mostly in the second quarter of 2020.

In the first six months of 2020, the Government’s Consolidated Fund registered a deficit of €896 million, a surge of almost €740 million when compared to the same period in 2019. This was the result of an increase in expenditure of €394 million combined with a decline in recurrent revenue of €345 million.

A higher outlay of €111 million was registered in Programmes and Initiatives, of which €44 million related to increased expenditure toward Medicines and surgical materials and €43 million to higher Social security benefits. The latter included benefits related to COVID-19 (€14 million). Moreover, Contributions to Government entities saw a rise of almost €78 million.

The pandemic, through reduced economic activity and the introduction of the tax deferral measure, also led to lower proceeds from Income Tax (€128 million), Value Added Tax (€86 million) and Social Security (€59 million), which were the main contributors for the decrease in revenue.

Capital Expenditure in the first six months of the year reached €387 million, increasing by €167 million from 2019. The increase included an outlay of €154 million toward the COVID-19 Wage Supplement scheme.

The higher deficit in the Government’s Consolidated Fund resulted in an increase in Central Government debt. As at the end of June 2020, Central Government debt was registered at €6,377 million, a rise of almost €896 million when compared to the same period last year. This debt was mainly financed from Treasury Bills and Malta Government Stocks, which saw a rise of €522 million and €380 million respectively.

GDP

In addition, COVID-19 had a noticeable impact on Gross Domestic Product (GDP), especially in the second quarter of 2020. Despite registering growth of 1.4 per cent in the first quarter of 2020, GDP decreased by 16.2 per cent in the following quarter, when compared to the same period last year.

This development was primarily the result of a decline in gross value added, across several sectors, particularly Wholesale and retail trade, Transport, Accommodation and food service activities, and Professional, scientific and technical activities, administrative and support service activities.

In contrast, the largest increases were registered in Arts, entertainment and recreation, repair of household goods and other services, and Information and communication.

Inflation

As expected, lower aggregate demand resulted in weaker price pressures. Chart 1 shows the annual rate of inflation as measured by the Retail Price Index (RPI). Inflation has been on a downward trend since July 2019, however continued to ease since the onset of the pandemic. The lowest rate was recorded in May 2020 and stood at 0.66 per cent. In June, the inflation rate stood at 0.72 per cent, compared to 1.90 per cent in the corresponding month of 2019.

Employment

Data collected through the Labour Force Survey, showed that, despite the negative shifts in the economy the first half of the year saw an increase in employment levels for both males and females when compared to the same period last year. Furthermore, the share of employed persons rose from 59 per cent in the first half of 2019 to 60 per cent in 2020, with a growth of five per cent in total employed persons.

Notwithstanding the increase in employment levels, total unemployed persons went up by almost 17 per cent.

The rise in employed persons was mainly recorded in those possessing a tertiary level of education whereas the main contributors to the increase in unemployed persons were those in possession of secondary education or less.

Delving into the average actual hours worked by employed persons, it was noted that this decreased when compared to the first half of 2019. The average actual hours worked both by those in full-time employment and by those having a part-time job as their main occupation was down by more than four hours every week.

Traffic

With many people opting to stay at home, some of whom also working from home, and others experiencing lower income, changes in road transport patterns were observed.

The number of newly licensed motor vehicles put on the road during the first half of the year decreased by almost 36 per cent when compared to the same period last year. This drop was mainly the result of lower newly licensed passenger cars by more than 4,000 vehicles. As expected, the category registered a sharper decrease during the second quarter of 2020 – by 3,115 vehicles as compared to 1,180 vehicles less in the first three months of the year.

Between January and June this year, the number of traffic accidents amounted to 5,612, a decrease of 2,189 or just over 28 per cent when compared to the same period in 2019. The decline was sharper during the second quarter with 1,890 less accidents than the corresponding quarter in 2019.

The April-June period also saw a decrease in accidents involving injuries and lower traffic fatalities by 39 per cent and 17 per cent respectively when compared to the same months of 2019.


28th November 2020

A unique opportunity for businesses to help the preservation of Valletta’s iconic skyline

25th November 2020

Option granted to European Commission to purchase up to an additional 80 million doses

25th November 2020

The Foodbank Lifeline Foundation helps individuals and families facing a short-term crisis through t...

25th November 2020

Despite deep cuts in costs by airlines, ‘devastating and unrelenting’ crisis cuts revenues further

Malta in the time of corona: NSO report on economy reveals depth of impact