Quarterly Malta Insights

Malta Insights

MALTA: SERVICES DRIVE ECONOMY FORWARD IN FIRST QUARTER

As pandemic-related restrictions eased during the first half of 2021, Malta’s economic recovery remained strong, with improved business and consumer sentiment, strong growth in investment and exports, together with improved tourismrelated activities. Indeed, tourism recovery, which is often described as a fundamental element of economic activity in Malta, has been significantly visible in recent months. Reaching 77.8%, the seat load factor (SLF) for the month of April was just 5.6% below pre-pandemic levels, indicating an encouraging demand for travel, according to the Malta International Airport. The recent S&P Global Ratings report indicated that economic growth in our country has been very strong, noting how investment has increased by a remarkable 19%. The services sector, particularly financial services, appear to have so far managed to have cushioned the impact of Malta’s placement in the enhanced monitoring procedures, known as grey-listing. Although no final decision had been taken at time of publication, government appeared confident that all actions required by the FATF were implemented and was largely optimistic on a possible exit from this predicament by early Summer.

This strong position was late in Spring confirmed by Fitch Ratings which has affirmed Malta’s LongTerm Foreign-Currency Issuer Default Rating (IDR) at ‘A+’ with a Stable Outlook. The agency said that Malta’s rating is supported by high per-capita income levels, a large net external creditor position and a pre-pandemic record of strong growth and sizeable debt reduction. These strengths are

balanced against its large banking sector, the small size of its economy, which is highly vulnerable to external developments, and a recent deterioration in public finances with large fiscal deficits, which have led to a sharp increase in the moderate public debt burden.

The Central Bank of Malta’s Business Conditions Index for April indicates that annual growth in business activity remains above its long-term average, though normalising at lower levels from previous months. The European Commission’s Confidence Survey shows that economic sentiment in Malta declined in April when compared with a month earlier and stood below its year-ago level. However, it was still above its long-term average.

Strong GDP growth registered: During the first quarter of 2022, Malta’s GDP rose by 10.8% in nominal terms and 6.9% in volume terms, when compared to the corresponding quarter of 2021, as a strong recovery builds strength. Data by the NSO shows that this growth was fuelled by the services sector, which has contributed 7%, while industry added a meagre 0.1%. Conversely and perhaps surprisingly, construction had a negative contribution of 0.2%. Compared to the same quarter last year, Service activities increased by 8.2% and Industry by 1.5% in volume terms. A drop of 9.5% and 3.9% was recorded in Agriculture and fishing activities and Construction, respectively. The increase in Services was mainly driven by the following sectors: Accommodation and food service activities (243.4%), Information and communication (14.3%), Wholesale and retail trade; repair of motor vehicles and motorcycles (16.5%) Arts, entertainment and recreation (9.2%), and Professional, scientific and technical activities (4.2%). Net taxes on products contributed positively towards GDP growth, with an increase of 14.0 per cent in volume terms.

Jobless rate at historical lows: The job market continued to flourish with firms struggling to recruit the necessary talent. The unemployment rate for April 2022 stood at 3.1%, according to NSO data, therefore declining by 0.1% when compared with the previous month and by 0.3% from April 2021. During April 2022, the number of unemployed persons was 8,834, with the unemployed males and the 25 to 74 age group being the major contributors to the overall level of unemployment. The seasonally adjusted number of unemployed youths amounted to 1,863, whereas those aged between 25 and 74 years stood at 6,971. For April 2022, the unemployment rate for males was 3.6%, declining by 0.2% when compared with the previous month. The rate for females stood at 2.4 per cent, unchanged when compared to March 2022. The unemployment rate for persons aged 15 to 24 years (youth unemployment rate) was 6.8%, while the rate for those aged between 25 and 74 years remained stable at 2.7%.

Exports, Imports on the up: During the first quarter of the year, the total trade in goods deficit widened by €245.0 million when compared to the

corresponding period of 2021, reaching €640.6 million, according to NSO data. Imports and exports increased by €406.5 million and €161.4 million, respectively, and amounted to €1,636.9 million and €996.3 million). Higher imports were mainly recorded in Machinery and transport equipment (€147.1 million), Mineral fuels, lubricants and related materials (€144.1 million), and Chemicals (€48.7 million). On the exports side, Mineral fuels, lubricants and related materials (€119.0 million), Food (€31.1 million), Chemicals (€23.1 million), and Semi-manufactured goods (€20.3 million) accounted for the main increases, partly offset by a decrease in Machinery and transport equipment (€24.5 million).

Inflation worries persist: In April 2022, the annual rate of inflation as measured by the HICP edged up further, reaching 5.4%, up from 4.5% March. As a result, the 12-month moving average rate for April stood at 2.1%. The highest annual inflation rates in April 2022 were recorded in Food and non-alcoholic beverages (9%) and Housing, water, electricity, gas and other fuels (8.6%). On the other hand, the lowest annual inflation rates were registered in communication (-1.8%) and Alcoholic beverages and tobacco. Malta’s cost of living rate remained the lowest in the EU.

Debt levels grow: By the end of April 2022, Government has already accumulated a deficit exceeding €388 million, data released by the NSO has shown. In the first four months of 2022, Recurrent Revenue amounted to €1,595.3 million, 16.5 per cent higher than the €1,369.7 million reported a year earlier. The largest increase was recorded under Income Tax (€82.4 million), followed by Value Added Tax (€53.0 million). Recurrent Expenditure totalled €1,769.7 million, an increase of €35.9 million in comparison to the €1,733.8 million reported by the end of April 2021. The main contributor to this increase was a €46.2 million increase reported under Programmes and Initiatives. The main developments in the Programmes and Initiatives category involved added outlays towards Economic stimulus payments (€48.1 million) and Tax relief measures (€25.7 million). This means that after four months the country’s deficit stands at €388.7 million. The debt level reached €8.3 billion at the end of 2021, up €1.3 billion in a year. The increase in general government debt, which now stands at 57 percent of GDP, is due to Covid-19 related initiatives and loan increases, among others. The majority of this debt is held in government stocks and treasury bills, representing 83% of total debt. Almost all the debt owed by the General Government sector is in national currency. The stock of debt in foreign currencies has decreased considerably over the years.

Economy to grow further as tourism improves: Major international players, such as the European Commission and credit rating agencies, still expect Malta’s economy to grow in 2022, but the disruptions caused by Russia’s invasion of Ukraine remained a dampener. According to the latest Economic Forecast by the European Commission, Real GDP growth is forecast to reach 4.2%, which is substantially less than expected in winter, although Malta has very low direct exposure to trade with Russia and Ukraine. Growth in 2022 is set to be driven by domestic consumption, investment, and a small positive contribution from net exports. Export of tourism services is expected to continue gaining ground on the back of easing pandemic-restrictions. Significant government expenditure, in particular via public investment and a new wave of European Union funding, will continue to support the economy. In 2023, growth is forecast to decrease to a still strong 4.0%, reflecting a general slowdown in performance among trading partners. The country’s unemployment rate, at 3.5% in 2021, is set to remain broadly stable in 2022 and 2023. Credit rating agency Fitch has forecasted that Malta’s tourism sector will further recover this year as tourist arrivals remained 65% below their 2019 level in 2021. Private consumption and services exports are projected to further increase in 2022/23, albeit more moderately compared with our previous forecast.

Sources NSO Central Bank of Malta Quarterly Review European Commission Spring Economic Forecast Standard and Poor’s Credit Rating – March 2022 Fitch Credit Rating – May 2022

European Insights

FISHING

OVERFISHING IN EU WATERS IN DECLINE

The European Commission has published the annual review of EU’s fisheries management and outlining priorities ahead for 2023, indicating that conservation efforts are further bearing fruit and the EU fisheries policy has been delivering in reducing overfishing in European waters. The report says that further efforts are still needed to protect marine resources, both through maintaining high levels of ambition within the EU and by striving to achieve the same high standard in the work with non-EU countries, like Norway, UK and the Coastal States. The stocks in northeast Atlantic areas are, on average, within levels that deliver the highest sustainable yields into the future. For the Mediterranean, the situation has further improved but there is still a long way to go. In the Baltic Sea, due to eutrophication, low oxygen levels in the water are hindering the normal growth and reproduction of fish and protective measures have been put in place.

HEALTH

BEATING CANCER: EU SEEKS TO ADDRESS THE RIGHT TO BE FORGOTTEN

On the occasion of the European Week Against Cancer, the Commission has published a study on the access to financial products for persons with a history of cancer, the so called ‘right to be forgotten’, in the EU and set out the next steps for action under Europe’s Beating Cancer Plan. The study highlights broad support for EU level policy to ensure fair access to products such as life insurances,