The Governor of the Central Bank of Malta Josef Bonnici has played down the convergence of Malta’s unit labour costs (ULC) with those of the EU, saying that they were also a reflection of structural changes.
During the presentation of the CBM annual report, he explained that a correction of ULCs in stressed countries had already taken place around 2009 and these were now moving closer to those of the core countries of the EU.
“Malta’s are also going up and converging with the core but we also have to take into account the fact that the economy is moving to higher value-added jobs, including in manufacturing,” he said to the audience of financial representatives and the media.
“Of course, this does not mean that we should not be on our guard and we have to make sure that wages and production are aligned.”
He also warned against superficial analysis of investment figures as the economy was moving increasingly towards services, which do not require the intense capital expenditure that, for example, manufacturing would. This trend explained why Malta had been consistently reporting current account surpluses since 2012.
“The historic comparison is quite dramatic. If the economy grows, then we may start to see imports rise but hopefully that would be to fuel more growth,” he said.
The reduction of manufacturing’s share of GDP from around 15 per cent of the economy to 12 per cent had also had an impact on employment trends, he said.
Economic highlights
The Maltese economy continued to outperform the euro area average, with real GDP growth accelerating to 2.4 per cent in 2013, from 0.6 per cent a year earlier. Domestic demand recovered, but a fall in net exports dampened economic growth. For 2014, the bank projects the pace of economic expansion to remain sustained, driven by a further recovery in domestic demand and a much less negative contribution of net exports.
During 2013, employment in Malta was on average 3.1 per cent higher than a year earlier. However, since the labour supply rose at a faster pace, the unemployment rate increased marginally. In seasonally-adjusted terms, the unemployment rate averaged 6.5 per cent in 2013, slightly higher than that recorded in 2012.
The report notes that the rate of inflation in Malta based on the Harmonised Index of Consumer Prices decelerated to an average of one per cent over the year under review, as against 3.2 per cent in 2012. The drop in inflation was mainly due to developments in services prices.
Turning to fiscal developments, the bank estimates that the general government deficit for the whole of 2013 declined to 2.9 per cent of GDP, and is projected to stabilise at that level in 2014. Government debt is estimated to have increased to 71.3 per cent of GDP in 2013 and is then expected to rise further to 71.8 per cent in 2014.
The bank remains responsible for the implementation of the single monetary policy in Malta. In this context, it conducted market operations with eligible banks worth an aggregate of €23.7 billion, more than double the amount conducted in 2012.
With yields across financial markets declining during 2013 and maturing securities in the bank’s portfolio being reinvested in lower yielding assets, the bank’s annual profits, though well above the average for the past 10 years, were lower compared with the level recorded in 2012. The profit level for 2013 (including provisions) amounted to €66.7 million compared with €78.2 million in the previous year, of which the net amount of €50 million was transferred to government.