Malta’s growth in Q3 was significant, but it was slower than in Q2

February 10, 2023

The first volume of the Central Bank of Malta’s Quarterly Review for 2023 has just released (vol 56, no. 1). The third quarter of 2022’s economic and financial developments in Malta and elsewhere are thoroughly examined in this edition.

Real GDP increased 5.2% in Q3 2022, indicating continued strong economic activity, but growth moderated from Q2’s extraordinarily high 9.4% gain. The decline in domestic demand, which nevertheless remained stronger than net exports, was a major factor in the slowdown in GDP.

In Q3, 2022, potential output growth was predicted to be 5.5%, up marginally from Q2. The CBM’s assessment of the production gap remained largely steady at +1.2%, showing that the economy’s productive capacity was being overutilized. In light of labor shortages and other supply constraints, this indicates a rapid rate of activity.

The CBM Business Conditions Index decreased and approached its long-term average. The economy started to recover from the COVID pandemic a year ago, and this indicates that the rate of economic activity has now returned to normal. The Economic Sentiment Indicator for the European Commission decreased from its long-term average, but its level in Q2 2022 was still slightly higher than that of the euro area.

The employment economy continued to experience good changes. Both the employment rate and the employment level increased annually. The unemployment rate in Q3 remained at 2.9%, unchanged from the previous quarter, and was lower than the rate of 3.3% a year earlier. Malta’s unemployment rate was likewise considerably lower than the 6.6% average for the euro zone.

The quarter saw an increase in price pressure. The Harmonized Index of Consumer Prices, which measures annual inflation, showed 7.4% in September, up from the 6.1% recorded in June. The main reason for the increase in inflation since June was higher services inflation, albeit food and non-energy industrial goods inflation also played a role.

Comparing Q3 of 2022 to the same quarter in 2021, the general government deficit decreased in level terms. The general government balance showed a deficit of 5.5% of GDP when calculated using a four-quarter moving sum method, which is less than the 6.7% observed in Q2, 2022. As of the end of September 2022, the general government debt-to-GDP ratio decreased from 53.9% to 53.2%. The government’s net financial worth as a percentage of GDP increased in the reviewed quarter while still being negative.

Source: Times of Malta
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