Malta’s economy is growing but so is inflation, the Central Bank said on Tuesday. 

The Central Bank published the fourth issue of its Quarterly Review for 2022 analysing the second quarter of the year.

Overall, economic activity accelerated during the second quarter of the year, as real GDP rose by 8.9% on an annual basis, following an 8.1% increase in the previous quarter. 

Faster growth was underpinned by an increase in the contribution of net exports, which is now in line with domestic demand. 

Potential output grew at a marginally faster pace. It stood at 5.1% in the second quarter of 2022, up from 5.0% in the previous quarter.

The bank’s estimate of the output gap remained positive, indicating an increase in the degree of over-utilisation of the economy’s productive capacity. 

This reflects a strong recovery in activity in the context of labour shortages and other supply bottlenecks.

The bank’s Business Conditions Index fell and stood closer to its historical average. 

This, it said, signals further normalisation in the pace of economic activity compared with the high rates registered in the first half of 2021.

The European Commission’s Economic Sentiment Indicator edged down from the level recorded in the first quarter of the year, but remained above its long-term average and exceeded slightly the level recorded just before the pandemic. 

Employment climbs 

Developments in the labour market also remained positive. 

Employment levels and employment rates both rose in annual terms. 

Meanwhile, at 2.9%, the unemployment rate stood unchanged from that registered in the previous quarter, and well below the rate of 3.4% recorded a year earlier. 

Malta’s unemployment rate also remained below the average rate of 6.6% for the euro area.

Prices also climbing

Price pressures continued to build during the quarter. 

Annual inflation, as measured by the Harmonised Index of Consumer Prices, stood at 6.1% in June, above the 4.5% recorded in March. 

Higher services inflation was the main driver behind the increase in inflation since March, although food and non-energy industrial goods prices also registered faster growth. 

Annual inflation based on the Retail Price Index – which only captures expenditure by Maltese residents – rose from 4.4% in March to 6.2% in June. 

Deficit narrows

During the second quarter of 2022, the general government deficit narrowed in level terms when compared to that recorded in the corresponding period of 2021. 

When measured on a four-quarter moving sum basis, the general government balance registered a deficit of 6.9% of GDP, lower than the 7.8% recorded in the first quarter of 2022.

Meanwhile, the general government debt-to-GDP ratio declined from 57.4% to 55.1% as of end-June 2022. 

The government’s net financial worth as a share of GDP improved in the quarter under review.

The Review also presents an overview of the monetary policy decisions taken by the Governing Council of the European Central Bank. The Governing Council kept the key ECB interest rates unchanged during the second quarter of 2022. 

However, in June, it announced its intention to start raising key interest rates in July. 

The fourth issue of the Quarterly Review for 2022 is available on the bank’s website.

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