Fitch Ratings expects unemployment in Malta to double in 2020
Fitch Ratings is forecasting unemployment in Malta to double throughout 2020 as a result of the coronavirus pandemic.
In its July report on Malta, in which it re-affirmed Malta’s rating at A+ with a stable outlook, Fitch said that despite the government’s fiscal measures to support the economy, it expects registered unemployment rate to increase to 7.1% in 2020, from 3.4% in 2019.
The report notes that the large share of foreign labour in the workforce supports the flexibility of the labour market and the expected outflow of foreign labour could help lower the unemployment rate through the crisis, but would have a further negative effect on private consumption.
Key rating indicators
Fitch said that Malta’s A+ rating was a result of high income per capita, euro area membership and large net external creditor position, countered by its large banking sector, relatively high government contingent liabilities and vulnerability to shocks due to its small, open economy, and reliance on tourism.
Malta outperforms the ‘A’ median on the World Bank governance indicators, although its scores on the ‘Voice and Accountability’ and ‘Control of Corruption’ subcomponents have been slipping in recent years.
Malta’s medium-term potential growth remains strong and well above the eurozone average, at 3.0%-3.5%. Fitch forecasts growth to rebound to 4.1% in 2021, before easing to 3.6% in 2022.
Fitch estimates the general government balance will deteriorate to a deficit of 9.2% of GDP in 2020 (8.2% in April’s review), from a surplus of 0.5% in 2019, based on the operation of automatic stabilisers and the direct budget impact of government measures.
In the same report, Fitch affirmed Bank of Valletta’s Long-Term at ‘BBB’ with a Negative Outlook on 27 April 2020. We believe financial soundness indicators are strong, with a high common equity Tier 1 ratio of 17.5% at end-2019 for core domestic banks, and provide a buffer to the financial system in the event of a sharper GDP contraction than forecast.
Property prices increase at a slower rate in Q1
The Property Price Index rose by 5.6 percent in the first quarter of 2020 compared with the same period last year, but the increase was the lowest recorded since the third quarter of 2018. Data by the National Statistics Office indicates a gradual narrowing in the increase every quarter since Q1 2019, when prices jumped by 6.5 percent over the previous quarter.
Prices for maisonettes grew by 6.2 percent compared with the first quarter last year, when the category registered an increase of 3.6 percent. The Index for apartments, on the other hand, witnessed a smaller rise of 5.7 percent year-on-year after they soared by 7.3 percent in Q1 2019.
Terraced houses are reflected in the Property Price Index aggregate, but specific indices are not published because of the lower number of transactions per quarter.
Across the EU, house prices saw a rise of 5.5 percent between Q1 2019 and Q1 2020. The highest annual increases occurred in Luxembourg (14%), Slovakia (13%), and Estonia (11.5%) while only Hungary witnessed a decrease (1.2%).
Compared with the previous quarter, however, Malta was one of four EU members to register a decline in property prices and, at -4.3 percent, it was the biggest drop among them.
Population grows despite fewer births in 2019
The population in Malta increased by four percent in 2019 to reach 514,564 by the end of the year. Figures by the National Statistics Office show that this is the first time that the population surpassed the half a million mark.
People under the age of 18 account to 16 percent of the total, but resident live births decreased by two percent from the previous year. There were approximately nine birth for every 1,000 residents in 2019, reducing the average fertility rate to 1.14 from 1.42 ten years ago. Meanwhile, the average life expectancy for those born in 2019 stood was 83 years, up from 81 a decade ago.
Migration was a main contributor to population increase, with 20,343 new persons taking up residence in Malta during 2019. Six in every ten migrants were Third Country Nationals, with EU nationals making almost 7,500 of new arrivals.
Fall in domestic tourism in 2019
There were 237,237 domestic tourists in 2019, a drop pf 3.4 percent compared with the previous year according to figures by the National Statistics Office. More than nine in ten domestic tourists travelled from Malta to Gozo and Maltese residents accounted to 54 percent of all tourism to the Gozo region during 2019.
At the same time, however, domestic tourism by Malta residents to Gozo registered a decrease of 5.2 percent from 2018. In contrast, domestic tourists travelling the other way increased by nearly 20 percent in the same period, totalling just under 22,000 visitors.
More than two-fifths of domestic tourists were in the 25-44 age bracket while those aged 45-64 formed the second-biggest group: over a quarter of the total. Nevertheless, the number of visitors in both age groups registered a decline from the year before, with a decrease of 7.3 percent among those aged 25-44 and 7.6 percent among those aged 45-64.
On the other hand, domestic tourism among those aged 15-24 grew by 7.6 percent and by 7.1 percent among those aged 65 and over.
Industrial production up from lowest index in a year
The Index of Industrial Production in May registered rose by of 2.9 percent, the first increase in four months. Data by the National Statistics Office shows that the total production index stood at 99.2, up from 96.4 in April – the lowest month for a year.
The gain in May was driven by a 7.5 percent growth in the consumer goods index. Production of capital goods also registered an increase of 2.3 percent, but intermediate goods and energy fell by 2.4 percent and 0.1 percent, respectively.
Compared with May 2019, the Industrial Production Index decreased by 4.5 percent, with the biggest decline observed in capital goods (-15.0%) and intermediate goods (-8.7%). Energy fell by 0.5 percent while production of consumer goods was the only index to see an increase (+1.6%).
Q1 registers largest deficit for five years
Total government revenue decreased by €193.6 million in the first quarter this year while expenditure increased by €99.5 million compared with the same period in 2019. Figures by the National Statistics Office show that General Government expenditure between January and March amounted to €1,286.6 million while income totalled €949.9 million, resulting in a €336, 668 million deficit.
In comparison, the first quarter in 2019 closed at a deficit of slightly over €43,500 million. The biggest quarterly deficit in the five years until now was experienced in Q1 2015, registering a negative balance of nearly €152,500.
In relation to the previous quarter, General Government saw a decrease in revenue from all sectors except Property Income receivables, which rose from €9,853 million in Q4 2019 to €25,138 in the first three months this year. The sharpest drop was witnessed in Market Output which shrank by 55 percent from the last quarter of last year to reach €74,566 million in Q1 2020.
The biggest decrease of revenue in absolute terms was registered in Current Taxes on Income and Wealth, which dipped by more than €228 million in the last quarter from €500 million in Q4 2019.
Meanwhile, government expenditure also decreased from the last three months of 2019, when it stood at €1,366, 898. The main increases in expenditure were registered in Social Benefits, Subsidies, Compensation of Employees, and Current Taxes which contributed to a total of €1,286,569 in the first quarter this year.