Business sentiment towards commercial activity in the last quarter of 2024 reached its lowest levels since 2021, suggesting a slowdown in activity, according to a recent Central Bank report.
The first edition of the Central Bank Business Dialogue report for this year said that while business activity remained positive, “it weakened compared to previous quarters indicating a slowdown”.
Some 9% of companies reported an improvement in business conditions over the preceding quarter, six percentage points less than the quarter before and 25 points less than the same period in 2023.
Expectations for improving conditions over the next three months, meanwhile, dropped to their second lowest levels since 2021, falling to 20% of companies – a drop of 17 percentage points from the previous quarter.
Not all sectors fared equally, however, with service-oriented firms – including tourism, audit and consultancy activities – reporting the highest incidence of improved activity followed by manufacturing companies.
Conditions in the wholesale and retail sectors, meanwhile, were “more or less stagnant” while construction saw “relatively low demand” for new projects. Demand for property sales and letting, however, was described as “resilient”.
The share of companies reporting higher profits in 2024 was more than double that in 2023, with 29% compared to 14%.
Maltese companies adapted their strategies to deal with economic challenges: for several firms, selling price increases achieved higher profits or at least maintained stable profit levels. More than a third of firms were also able to increase their profits without changing prices, likely by reaping efficiency gains or sourcing cheaper products, the report said.
Looking ahead, retailers expect seasonal increases in demand and manufacturers continue to expect growth.
Despite reporting robust performance, the share of services-oriented firms expecting improving conditions “more than halved” however. More stringent EU regulations and “global economic uncertainties” were to blame for reduced optimism in several “sub-sectors” of the services industry, the report noted.
Rising costs remained the biggest concern for the companies surveyed, with labour costs the most significant contributing factor.
However, despite rising costs, the net share of firms saying they were planning to raise prices dropped by almost 30% from the last survey, with companies reporting they were finding it harder to pass on rising costs to consumers.
Meanwhile, the share of companies planning to increase investment rose to more than a quarter – versus none in the previous survey – with an increased focus on sustainability and digitalisation, the report said.
Job creation remained stable, and most firms reported wage increases of between 5% and 6% last year. Wages are expected to rise slower this year, however, with estimations of increases between 3% to 6%.
The net share of business planning to increase staffing stayed relatively stable, rising marginally to 24%, while labour shortages were identified as the biggest challenge facing employers.
“Skilled labour shortages remain the most pressing issue, affecting 36% of respondents, particularly in manufacturing and construction,” the report said, noting other challenges included bureaucratic inefficiencies and increased competition.
The report was compiled following interviews with Maltese companies – non-financial corporations (NFCs) and other institutions – in 45 sittings between October and December.