Consumer confidence plunges to record low – CBM

Consumer confidence plunged to a record low of -41 in March, according to the Central Bank of Malta’s latest Quarterly Review.

All the components of the index declined, particularly households’ assessments of the general economic situation and their own financial position over the coming 12 months.

The Central Bank said respondents were also more pessimistic about their ability to save and about job prospects. The decline in sentiment was spread across most occupational segments.

On balance, compared to last December, a larger number of consumers expected prices to rise in the coming 12 months. The number of respondents believing the time was right to make major purchases remained roughly unchanged. After having risen in the December quarter, industrial confidence among Maltese manufacturers remained almost unchanged in the first quarter of this year.

Having declined in the second half of 2010, confidence among service providers rose to 25 in March from 13 in December.

The review notes that real GDP in Malta expanded by 3.9 per cent on an annual basis during the fourth quarter, a faster rate than in the previous quarter. Growth was primarily driven by domestic demand, particularly investment, with net exports contributing marginally.

Labour market conditions generally remained favourable during the quarter, as reflected in a drop in the number of unemployed and increasing employment numbers. The seasonally adjusted unemployment rate fell to 6.5 per cent in December.

The review also notes that during the fourth quarter of 2010 the deficit on the current account of the balance of payments remained largely unchanged from that recorded in the same period of 2009.

In contrast, over the year as a whole, the current account deficit narrowed to 4.1 per cent of GDP, as against seven per cent in 2009.

As regards price developments, the review observes that inflation continued to rise, reaching four per cent in December from 2.4 per cent in September, with the higher rate of inflation mainly reflecting rising prices of services, non-energy industrial goods and energy.

Developments in competitiveness indicators were mixed in the fourth quarter. Unit labour costs dropped, as compensation per employee fell more strongly than productivity. Conversely, the nominal and real Harmonised Competitiveness Index increased, signalling a deterioration relative to September.

The contribution of Maltese microfinance institutions to the euro area broad money stock continued to rise on an annual basis during the fourth quarter as residents’ deposits increased. At the same time, the annual rate of expansion in credit to residents moderated further. Interest rates in the primary money market were higher in line with developments in their counterparts abroad.

In its analysis of fiscal developments, the review reports that the general government deficit narrowed to 3.6 per cent of GDP during 2010, from 3.7 per cent in 2009, reflecting stronger revenue flows and expenditure restraint. However, the general government debt continued to rise, reaching 68 per cent of GDP in 2010.

From a policy perspective, the review argues that as the economy continues to recover, policy efforts should focus on additional fiscal consolidation measures, especially in the light of rising age-related costs, the expectation that the structural balance will fall short of the medium-term objective of a balanced budget and financial markets’ ongoing reassessment of sovereign related risks. This consolidation process should be supported by structural reforms aimed at fostering growth and strengthening competitiveness.

The Quarterly Review is available on the website of the Central Bank of Malta at www.centralbankmalta.com.