The construction sector showed signs of continued slowdown last year, employing more workers but dropping in productivity, according to Central Bank of Malta figures.
The largest drop in productivity across the economy last year was in construction, which declined by almost 13%, the bank said in its annual report for last year.
It noted that while employment in the sector grew by 5%, its output decreased by 8%, leading to an overall slump in productivity. At the same time, its share of the total value added to the economy fell by almost a fifth.
Meanwhile, the number of Planning Authority residential and commercial permits dropped by around 15%, while investment dwindled and confidence in the sector plummeted to its lowest levels since the pandemic, the report showed.
The bank said residential construction was expected to “decline marginally” this year amid “weak sentiment” in the sector and “increasingly binding” labour shortages.
However, it noted that despite the slowdown, construction was still expected to deliver “modest growth” this year with employment in the sector also forecast to improve over the next three years.
Despite confidence in construction dropping by more than 80%, the bank noted it was still “firmly above” the historical average.
The central bank’s annual report cements similar findings last year pointing to a slowdown within the construction industry.
In August, auditing giant KPMG said the sector had shrunk by 14% in the first three months of 2023 when compared to the same period in 2022, a trend it said at the time had been ongoing for a year and a half.
And data from the central bank report shows the sector’s Gross Value Added (GVA) has fallen steadily since 2021, dropping by around €40 million each year. During the same period, employment in construction rose by 20% to reach almost 19,000 last year.
GVA measures the economic value that each individual sector contributes to a country’s economy. Last year, the construction industry’s share of the total GVA fell to 3.4% from 4% the year before.
Sector ‘not the main driver’
Last April, Finance Minister Clyde Caruana hit out at Developers Association president Michael Stivala after the construction mogul claimed the sector was vital for sustaining “health and education, infrastructure and all the other social schemes”.
Caruana argued instead that the country’s economic growth was mainly driven by other industries, including financial services, gaming and tourism, rather than hinging on the construction industry.
And the latest report seems to support Caruana’s assertion, with central bank figures revealing that exports ‒ which includes tourism ‒ contributed almost 90% of the country’s 5.6% Gross Domestic Product (GDP) growth last year.
GDP measures the monetary value of all goods and services produced by a country.
“Services remained the main driver behind the rise in economic activity, adding 4.9 percentage points to real GDP growth”, the financial institution said, pointing to professional and administrative services and financial and insurance activities, among others, as the main drivers of growth.
Construction, meanwhile, lowered GDP growth by 0.3 percentage points due to the value added by the sector falling “for the second consecutive year”, it said. For the second year in a row, construction was the least contributing sector to GDP growth, with Malta’s agricultural sector the only other to contribute negatively.
Falling investment
Overall, economic growth and inflation both hit 5.6% last year, while the government deficit reached 3.4% of GDP in the third quarter and employment grew by 5.7%.
The central bank report also reveals that total private and public sector investment dropped dramatically last year, falling by 22% after rising by a whopping 31% the year before.
“The most significant decrease [in investment] was recorded in expenditure on transport equipment, reflecting a decrease in registrations of aircraft from the very high level recorded a year earlier,” the report said.
“Investment in other buildings and dwellings also declined. On the other hand, investment in intellectual property increased, while investment in cultivated biological resources remained broadly stable.”
Looking ahead
The central bank predicts Malta’s GDP will continue to grow over the next three years, but at a slower rate than last year.
Growth is expected to reach 4.4% this year, 3.6% next year and 3.3% in 2026, while government debt as a percentage of GDP is expected to increase to 54.3% by 2026.
The rate of increase in employment is expected to halve to 3.2% this year while unemployment is set to rise marginally over the next three years.
And while there is good news for consumers, with inflation expected to almost halve this year to 2.9%, exports are anticipated to reduce drastically this year through to 2026 amid geopolitical tensions and trade disruptions.