Economic conditions similar to 2009 recession, Central Bank says

Miguela Xuereb

The economic conditions are similar to those of the ‘great recession’ of early 2009, the Central Bank of Malta said on Friday in its economic update.

The Central Bank’s Business Conditions Index dropped by -2.3 in April according to the newly published report. The drop suggests notably weaker levels of economic activity with respect to the long-term average.

On Friday, restaurants and beauty parlours reopened their doors to customers after the government lifted more of the restrictive measures which had been implemented in order to contain the spread of the coronavirus in the community.

The coronavirus pandemic has triggered an exceptional economic environment with the BCI beginning to signal significantly low levels of economic activity. The conditions of business are now comparable to readings during the great recession in early 2009, it said.

The current reading was affected by strong negative out-turns in most variables, in particular lower tourist arrivals, economic sentiment and government revenues, as well as higher unemployment. On the other hand, these were offset somewhat by growth in industrial production.

The data reported in the Economic Update for April refers to March 2020 which coincides with the first phase of coronavirus cases in Malta and the intensification of the related containment measures.

The bank noted that the impact of the coronavirus outbreak in Malta was also evident in the European Commission’s Sentiment Indicator, which has also declined sharply.

Sentiment weakened in all sectors, with the largest falls recorded in the services and construction sectors.

Tourism activity has contracted sharply as a result of the coronavirus restrictive measures. On March 21, a travel ban was imposed in a bid to contain the number of imported cases.

The volume of retail trade also contracted, though by far less than tourism activity, as the growth in industrial production slowed down.

The number of registered unemployed increased in March. However, the unemployment rate remained low from a historical perspective.

Jobsplus data show that the number of persons on the unemployment register stood at 2,125 in March, higher than 1,659 in February and 1,772 a year earlier, the Central Bank reported.

The seasonally-adjusted unemployment rate stood at 3.5% in March, marginally higher than the 3.4% registered in the previous month, but still lower than the rate of 3.6% in the preceding year.

Consumer price inflation edged up in March, though still remaining at low levels, with the annual inflation rate based on the Harmonised Index of Consumer Prices rising to 1.2%. Similarly, inflation based on the Retail Price Index rose slightly to 1.1%.

The publication also looks at public finance developments and notes that the deficit on the cash-based Consolidated Fund widened significantly compared with a year earlier, partly reflecting the Government’s decision to defer the collection of a number of tax revenue components in view of coronavirus.

It also reports on recourse to the moratorium on loan repayments offered by domestic credit institutions by the end of March in response to COVID-19. The value of household and corporate loans subject to a moratorium at the end of the month was €487.0 million, equivalent to 4.5% of related outstanding loans.