Bank survey shows brightening business outlook

Respondents to the Central Bank of Malta`s latest business perception survey reported below-normal activity levels during the fourth quarter of 2001, but performance was better than expected since in the previous survey respondents were very pessimistic about the short-term outlook, the bank says in its Quarterly Review for March, issued yesterday.

Furthermore, some respondents` outlook for the first half of 2002 swung from negative to positive, while others moderated their pessimism, the bank said.

Results of the latest business perception survey was issued yesterday with the CBM`s Quarterly Review - March 2002.

On the balance of payments, the quarterly review notes that the current account deficit had narrowed considerably in the fourth quarter of last year when compared with the same period of the previous year.

This improvement occurred mainly in the investment income account, though a narrower merchandise trade gap and higher net receipts from services also contributed.

At the same time, larger net inflows on the capital and financial account led to an overall balance of payments surplus. As a result, the bank`s net foreign assets rose by Lm71.6 million during the quarter.

As regards government finance, the Review observes that, mainly as a result of a substantial increase in revenue, the fiscal deficit narrowed to Lm4.3 million during the last quarter of 2001.

For the 12 months to December the level of the deficit remained almost unchanged at just over Lm85 million, but the deficit/GDP ratio dropped to 5.3 per cent from 5.5 per cent in the preceding year.

The bank said that broad money expanded strongly during the final quarter of 2001, as the private sector continued to build up its holdings of savings and time deposits. This expansion was almost completely matched by the increase in the bank`s external reserves.

In contrast, domestic credit contracted slightly, while short-term interest rates fell.

In the capital market government bond yields also eased and the decline in equity prices appeared to have been stemmed.

An expansion in bank deposits caused the deposit money banks` aggregate balance sheet to expand by Lm54.6 million during the quarter.

Moreover, although profits before tax were lower than in the September quarter, the banks strengthened their capital base and their liquidity position remained comfortably above the mandatory limits. At the same time, following three successive quarterly contractions, the aggregate balance sheet of the international banks expanded during the final quarter of the year.

The Review first explains the bank`s decision to ease its monetary policy further during the December quarter. Thus, in October it lowered the required reserve ratio by one percentage point to four per cent, whereas in November it cut official interest rates by 25 basis points to 4.25 per cent. In January the bank eased its monetary stance even further, cutting official interest rates to four per cent.

During the December quarter the Gross Domestic Product (GDP) contracted by 2.9 per cent in real terms, as the economy was hit by the global downturn and the effect of the September 11 terrorist attack in the US.

This was reflected in a further decline in exports of electronic components and a sharp drop in tourist arrivals. Private consumption also declined as households cut expenditure on non-essential goods and services, and the rate of the registered unemployed rose to 5.1 per cent . This notwithstanding, retail price inflation edged up to 2.9 per cent, mainly reflecting higher fuel prices following the liberalisation of such prices announced in the budget.

The March 2002 issue of the Quarterly Review will be available on the website of the Central Bank of Malta.

www.centralbankmalta.com.