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The Central Bank of Malta, in its review of this year’s second quarter, has found optimism among Malta’s businesses on the rise following three consecutive quarters of eroding confidence.
The finding, which results from the CBM’s latest business perceptions survey carried out between April and May, show that the majority of firms expect an improvement in the performance of the Maltese economy. The Bank reports this renewed confidence was mainly driven by export-oriented sectors, which reported higher turnover during the first quarter of 2004.
Overall, activity in the domestically oriented sectors remained below normal, with a deterioration reported by the manufacturing and distributive trades, and some improvement in financial services and construction.
Looking ahead, export-oriented firms have projected substantial gains during the second quarter of 2004, whereas firms catering for the domestic market have tended to be more cautious.
Turing to the Bank’s monetary policy stance over the first and second quarters of 2004, the CBM notes how t he central intervention rate had remained unchanged at three per cent. Monetary conditions were generally stable with the Bank’s net foreign assets rising in the first quarter of the year before declining in the next three month period, partly because of the increased cost of oil imports.
The premium on Maltese lira short-term rates remained stable throughout the first quarter, but narrowed gradually in the second quarter as money market rates abroad rose. At the same time, although inflation rose sharply at the beginning of the year, under the impact of the increase in the standard VAT rate, inflationary pressures subsequently moderated. Information available on money and credit aggregates, as well as data from the labour market, also pointed to subdued economic activity, though there were signs of a recovery in exports.
In its assessment of monetary developments, the Review notes that broad money expanded during the first quarter, reversing the drop registered during the previous quarter. Monetary expansion was driven by increased domestic credit which, in turn, was fairly evenly divided between net claims on central Government and claims on other residents, mainly mortgages to households.
Otherwise, growth in credit to the private sector remained weak, while the net foreign assets of the banking system as a whole decreased slightly.
Although GDP data for the first quarter of 2004 were not available at the time of writing, the Review observes that various indicators pointed to a pick-up in economic activity with higher export receipts being registered by manufacturing and tourism.
Conversely, a further drop in the gainfully occupied, and the resulting higher level of unemployment, indicated that domestic demand continued to be weak during the quarter.
Local sales by the manufacturing sector and imports of consumer goods declined compared with a year earlier, reversing the exceptional rise that had occurred in the last quarter of the year, prior to the increase in the standard VAT rate in January.
Despite this rise, year-on-year inflation fell slightly during the first quarter of 2004, driven by changes in food and clothing and footwear prices. The twelve-month moving average inflation rate, however, continued to rise.
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