Growing trade deficit slows economic growth

The latest Central Bank of Malta (CBM) quarterly review, covering Q4 of 2022 shows that a drop in net exports is slowing overall growth, and that the labour market is as tight as ever

During this period, economic activity remained strong, but decelerated when compared to the previous quarter, with annual real gross domestic product (GDP) slowing to 4.7 per cent from 5.3 per cent.

The decline in growth was largely due to a more negative contribution from net exports, which offset an increase in the effects of increased domestic demand.

The CBM also calculated Malta’s output gap, an economic measure of the difference between the actual output of an economy and its potential output.

The output gap for Q4 of 2022 stood at 0.9 per cent, down from 1.3 per cent the previous quarter. This implies that the degree of over-utilisation of the economy’s productive capacity has eased slightly.

Despite a persistent workforce shortage, developments in the labour market remained positive, with an increase in employment and a stable unemployment level of 2.9 per cent. This increase was led by growing employment levels among women.

Despite the workforce growing by 5.4 per cent during Q4 2022 year-on-year, labour market slack has reached new lows.

The CBM noted that price pressures had somewhat eased during the quarter in question, however, inflation was largely unchanged, having declined to 7.3 per cent by the end of the year, only 0.1 per cent below the rate recorded in September.

This was due to a drop in inflation in services being offset by an increase in the cost of food and non-energy industrial goods.

In light of persistently high inflation, the CBM took note of the fact that, the European Central Bank’s Governing Council “anticipates further significant increases in interest rates.”

The general Government balance registered a deficit of 5.8 per cent of GDP during Q4 of 2022, up from 5.7 per cent in the previous quarter.

This was coupled with an increase of debt-to-GDP ratio of 53.4 per cent (up 0.5 per cent). Fortunately, this is well below the 60 per cent debt-to-GDP ratio limit outlined in the EU’s Maastricht Treaty.

 For a fuller picture of the Central Bank’s review of Q4 2022, click here.