The Central Bank of Malta recently published the first edition of its Quarterly Review for 2023 (vol 56, no. 1). The edition analyses in depth the economic and financial developments in Malta and abroad during the third quarter of 2022.

Economic activity in Q3, 2022, remained strong, with real GDP rising 5.2%, although growth slowed compared to Q2’s exceptionally high 9.4% increase. The slowdown in growth was largely due to lower domestic demand, which however, remained higher than net exports.

Potential output growth was estimated at 5.5% in Q3, 2022, slightly higher than in Q2. The CBM’s estimate of the output gap remained broadly constant at +1.2%, indicating an over-utilisation of the economy’s productive capacity. This reflects a strong pace of activity in the context of labour shortages and other supply bottlenecks.

The CBM Business Conditions Index fell and was closer to its historical average. This signals that the pace of economic activity normalised from its exceptionally high levels a year earlier when the economy started to recover from the COVID pandemic.

The European Commission’s Economic Sentiment Indicator fell below its long-term average and its level in Q2, 2022, remained marginally above that in the euro area.

Developments in the labour market remained positive. Employment levels and employment rates both rose in annual terms. Meanwhile, the unemployment rate in Q3 was unchanged from that in the previous quarter at 2.9%, and below the rate of 3.3% a year earlier. Malta’s unemployment rate was also well below the euro area average rate of 6.6%.

Price pressures continued to build up during the quarter. Annual inflation, as measured by the Harmonised Index of Consumer Prices, stood at 7.4% in September, above that of 6.1% recorded in June. Higher services inflation was the main driver behind the increase in inflation since June, although food and non-energy industrial goods inflation also contributed. Annual inflation based on the Retail Price Index – which only captures expenditure by Maltese residents – rose from 6.2% in June to 7.5% in September.

During Q3, 2022, general government deficit narrowed in level terms compared to the corresponding period of 2021. When measured on a four-quarter moving sum basis, the general government balance registered a deficit of 5.5% of GDP, lower than the 6.7% recorded in Q2, 2022. Meanwhile, the general government debt-to-GDP ratio fell from 53.9% to 53.2% as at end-September 2022. Government’s net financial worth as a share of GDP also improved in the quarter under review, while remaining negative.

The front cover of the latest edition of the journal.

The Review also presents an overview of the monetary policy decisions taken by the European Central Bank’s Governing Council. The council started to raise its key interest rates in July and increased them again in September 2022. By the end of Q3, the interest rates on the main refinancing operations, the marginal lending facility and the deposit facility, reached 1.25%, 1.50% and 0.75% respectively.

Net asset purchases under the asset purchase programme (APP) ended on July 1, 2022. Meanwhile, the council reaffirmed its intention to continue fully reinvesting the principal payments from maturing securities purchased under the APP for an extended period of time and for as long as necessary to maintain ample liquidity conditions and an appropriate monetary policy stance.

In July, the council also approved a new Transmission Protection Instrument to help prevent disorderly market dynamics that could pose a serious threat to the transmission of monetary policy. The council also reiterated its intention to reinvest the principal payments from maturing securities purchased under the pandemic emergency purchase programme until at least the end of 2024.

As euro area inflation continued to increase after September 2022, the council raised the ECB’s policy rates further in Q4, 2022, and announced additional measures to complement the normalisation of the monetary stance. In particular, the council reviewed the terms and conditions applicable to TLTRO III as from November 23, 2022. It also announced that from the beginning of March 2023, the Eurosystem will not reinvest all of the principal payments from maturing securities in the APP portfolio. The decline in the APP holdings will amount to €15 billion per month on average until the end of Q2, 2023, and its subsequent pace will be determined over time.

The Review also presents the results of a study on the role of the construction and real estate sector in the Maltese economy, including indirect effects and linkages with other sectors. In addition, it reviews the relation between income, saving and wealth using data collected from the 2017 Household Finance and Consumption Survey.

The Review also presents the results of a study on the role of the construction and real estate sector in the Maltese economy, including indirect effects and linkages with other sectors

Finally, it presents an article on key trends and developments in the logistics sector using different data sources.

The first edition of the Quarterly Review for 2023 is available to download from the following website.