Malta: Growth in Q3-2021 remained strong, but lower than 2019 levels – CBM

Growth in the third quarter of 2021 remained strong, the Central Bank said, rising 9.7% on the same quarter a year before, but still remained 2.2% 2019 levels. The upward push was mainly driven by services, but economic activity continued to be affected by the COVID-19 pandemic and associated containment measures, although these were less stringent than a year earlier.

In a detailed economic assessment, the Bank noted that the estimate of the output gap narrowed but remained in negative territory. This means that despite the economy’s gradual return to more normal levels of economic activity, the economy’s productive capacity remain still remains somewhat underutilised, especially in tourism and entertainment-related sectors. The Bank’s Business Conditions Index stood strongly above its historical level in the third quarter of 2021 as several sub-components of the index recorded strong annual increases over the third quarter of 2020, which was a low point for several indicators due to the COVID-19 pandemic.

Meanwhile, the European Commission’s Sentiment Indicator retreated slightly from the level recorded in the second quarter but remained elevated from a historical perspective. This may reflect the easing of the COVID-19 restrictions and related improvement in activity as well as a further increase in vaccination rates achieved during the quarter. During the third quarter of 2021, developments in the labour market remained positive as employment stood above pre-pandemic levels and unemployment fell further.
According to the Labour Force Survey, employment and activity rates increased. The unemployment rate stood at 3.6%, slightly higher than the 3.4% registered in the previous quarter, but well below the 4.9% recorded a year earlier.

It also stood below the average rate for the euro area which stood at 7.4%. Inflation increased during the quarter under review. Annual inflation as measured by the Harmonised Index of Consumer Prices stood at 0.7% in September, up from 0.2% in June, mainly due to faster growth in non-energy industrial goods and unprocessed food prices. Annual inflation based on the Retail Price Index – which only takes into account expenditure by Maltese residents – rose from 1.5% in June to 2.2% in September.

During the third quarter of 2021, the general government deficit widened when compared to a year earlier, as expenditure increased more strongly than revenue. When measured on a four-quarter moving sum basis, the general government deficit reached 8.5% of GDP, marginally above the 8.4% recorded in the second quarter. Meanwhile, the general government debt-to-GDP ratio closed the third quarter at 57.2%, down from 59.1% at the end of the previous quarter. Government’s net financial worth as a share of GDP improved in the quarter under review.