Modest signs of economic recovery from the COVID-19 outbreak were recorded in August, but the pandemic had a devastating effect on public finances with a deficit of €156.2 million being registered in July, the Central Bank announced.

According to the economic update published on Wednesday, in August the Business Conditions Index – an indicator used to measure the level of economic activity – registered a marginal improvement over the previous month. However, it remained significantly below  the long-term average as Malta’s economy performed well below the pre-pandemic level.

Similarly, the economic sentiment indicator which comprises the level of confidence in industry, construction, services, consumers and retail trade, also registered a slight improvement over July, but remained well below the level registered before the COVID-19 outbreak.

Within this indicator sentiment improved in the services industry and to a lesser extent among retailers, but confidence fell in the construction sector.

In July, the volume of retail trade and industrial production fell in annual terms though at a slower rate than in June.

The Central Bank said the decline in the issuance of development permits for both commercial and residential purposes continued, but the overall level was still above the historical average.

Positive signs as unemployment declines

A key positive indicator in July come from the labour market, as unemployment fell from 4,270 in June to 3,981 in July, though it remained significantly higher than the corresponding period in 2019 when the respective figure was of 1,654.

Inflation remained at low levels in July as the annual inflation rate based on the Harmonised Index of Consumer Prices fell to 0.7%, from 1.0% in June, while inflation based on the Retail Price Index edged down marginally to 0.6%.

As in previous months, the pandemic had a devastating effect on government’s finances due to a sharp decline in revenue from taxes and a concurrent exceptional expenditure on measures to mitigate the impact of the virus on the economy, such as the wage supplement.

Deficit continues to rise as income declines, and spending rises

In July a deficit of €156.2 million was recorded, which contrasted sharply with the corresponding month of 2019 when a surplus of €30.2 million was registered.

As for the moratorium on loan repayments offered by banks to give some respite following the COVID-19 economic slowdown, the Central Bank said that the offer was taken up by around one in every six customers or 16% of outstanding loans. The overall value of these loans was of €1.8 billion.

Furthermore, by the end of July 340 business operators had taken up the COVID-19 Guarantee scheme managed by the Malta Development Bank which was launched in April. This initiative was meant to guarantee loans for working capital to businesses impacted by the pandemic and the overall amount issued  was of €238 million. 

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