The pace of economic activity decelerated sharply in the first three months of this year on the back of the COVID-19 pandemic, the Central Bank of Malta said on Friday.
Real gross domestic product rose by just 0.5% in annual terms, after increasing by 4.8% in the preceding quarter, according to its quarterly review.
However, this annual growth in Malta fared well when compared to the euro area, where GDP contracted by 3% during the same period.
Malta reported its first coronavirus case on March 7 and by the end of that month many parts of the economy had been effectively shut down.
The strong decline in domestic demand as a result of weaker activity in COVID-19-hit sectors was the key cause for the slowdown in growth. At the same time, the contribution of net exports also declined but remained positive.
Resilient labour market
The review, which reflects the initial impact of COVID-19, also notes that given the scale of the economic shock caused by the pandemic, the labour market showed a significant degree of resilience.
Employment continued to increase and the unemployment rate remained low from a historical perspective.
According to the Labour Force Survey, the unemployment rate stood at 3.3%, which is lower than that recorded a year earlier and well below the average 7.5% rate for the euro area.
The Central Bank however noted that labour market data for the first quarter of the year may not yet fully reflect the impact of COVID-19, as the major containment measures only became effective in the second half of March.
Also, the effects of the pandemic were mostly reflected in hours worked, rather than headcount reductions.
Government deficit widened
When it comes to public finances, the government deficit widened significantly compared to the corresponding period a year earlier, as revenue fell and expenditure rose.
The deterioration in public finances largely reflects the negative impact of the pandemic: in particular, weaker activity and postponement of tax payments was reflected in lower tax revenue, while fiscal support measures lifted a number of government expenditure items, the central bank said in its review.
When measured on a four-quarter moving sum basis, the government registered a deficit of 1.7% of GDP.
Meanwhile, the government debt-to-GDP ratio increased to 44.4% during the first quarter of 2020, from 42.9% at the end of December.
Net financial worth as a share of GDP worsened, as an increase in the stock of financial assets held by government was offset by a larger rise in financial liabilities.
European Central Bank measures
In an overview of the monetary policy decisions taken by the European Central Bank during the first quarter of 2020, the review refers to a package of monetary policy measures to combat the economic disruption and heightened uncertainty brought about by the pandemic.
"These measures, along with unprecedented action by supervisors and fiscal authorities, should help sustain a steady flow of credit to the private sector and support the return of economies to a recovery path.
"In fact, incoming information shows the start of a recovery globally and in the euro area, albeit from lower levels. However, the outlook remains uncertain and conditional on the evolution of the pandemic and the development of a medical solution."
Unprecedented decline in March activity
Activity in the tourism sector remained strong in January and February, but the sector experienced an unprecedented decline in March as several measures were introduced to contain the spread of COVID-19, culminating with the suspension of all commercial flights to and from Malta on March 21.
As a result, in the first quarter the number of inbound tourists declined by 13.1% on a year earlier, to 370,216. This followed an increase of 10% in the preceding quarter.
The number of nights that tourists spent in Malta totalled 2.2 million, a fall of 20% on the first quarter of 2019 while tourist expenditure in Malta fell by an annual rate of 17.5%, to €224.6 million.