Malta’s economic activity remained broadly aligned with its historic average in August, with stronger production, retail activity and tourism helping offset a marginal easing in overall business conditions, the Central Bank of Malta said.

The Bank’s latest economic update found that its Business Conditions Index declined marginally in August and remained slightly below its historical average.

However, several underlying indicators pointed to continued momentum in the economy.

Industrial and services production, as well as retail activity, grew at a faster pace in July, while services production had also accelerated in June. Tourism continued to perform strongly in July, providing further support to economic activity.

Consumer sentiment moderated during August but remained well above its historical average, suggesting that households continued to retain relatively positive expectations despite the slight deterioration during the month.

Property demand remains strong

The property market also continued to show relatively strong demand.

Final deeds and promise-of-sale agreements increased in August compared with both the same month a year earlier and July, pointing to continued activity in the property market.

Supply indicators were more mixed. Approved permits for residential and commercial buildings declined compared with July. On an annual basis, residential permits decreased, while commercial permits remained broadly unchanged.

For investors, the divergence between continued transaction activity and weaker residential permitting provides a notable indicator of the balance between demand and future construction supply.

Labour market remains tight

Malta’s unemployment rate remained unchanged at 3.5 per cent in July, matching the rate recorded in June, although it was higher than the rate recorded a year earlier.

Meanwhile, consumers became more cautious about employment prospects, with unemployment expectations increasing in August compared with the previous month.

The labour market therefore continued to show relatively low unemployment, although sentiment around future employment conditions softened.

Inflation remains below euro area rate

Inflation eased marginally in August, with Malta continuing to record a lower rate than the euro area.

The annual inflation rate measured through the Harmonised Index of Consumer Prices (HICP) fell to 2.0 per cent in August, from 2.1 per cent in July. HICP inflation excluding food and energy stood at 2.2 per cent.

Both headline inflation and core inflation were higher across the euro area than in Malta, with the Central Bank pointing to higher energy inflation as a key factor behind the difference.

Under Malta’s Retail Price Index, meanwhile, inflation declined to 2.6 per cent in August.

Public finances and credit

The government’s fiscal position showed some deterioration in July, with the Consolidated Fund recording a larger deficit than a year earlier. This reflected a stronger increase in government expenditure relative to revenue.

On the financial side, the annual growth rate of deposits held by Maltese residents increased in July compared with June.

Credit to residents also continued to expand, although at a slower pace.

Taken together, the latest indicators point to an economy that remains broadly consistent with its longer-term performance, with continued strength in tourism, production, retail and property demand, while inflation remains relatively contained and some measures of business and consumer sentiment have softened.

Image Credit: Inigo Taylor