Confidence in the retail sector falls sharply

Noel Grima

In a surprise contradiction of the many stories highlighting the growth of the Maltese economy, the latest consumer and business surveys carried by the Central Bank's Quarterly Review, issued this week, says that confidence in the retail sector has fallen sharply in the second quarter of this year.

The surveys also state that industrial confidence has also declined, but confidence in the construction sector edged up.

During the second quarter of 2018, the economic sentiment indicator fell to 116, from 121 in the preceding quarter, but remained well above its long-term average of 101.

Sentiment declined within retail firms and industry as well as among consumers, but was broadly unchanged in the services sector. In contrast, sentiment improved within construction, reaching a record level. During the second quarter of 2018, the ESI for Malta remained higher than that in the euro area, which averaged 113.

Confidence in the retail sector falls sharply

Sentiment in the retail sector fell to 4, from 15 in the first quarter of 2018. Despite this decline, sentiment among retailers stood above its long-term average of 2.

The decline in confidence was driven by firms' assessment of past and expected business activity, as the share expecting an improvement in business activity in the months ahead fell strongly from high levels recorded in the preceding two quarters.

Similarly, on balance fewer firms considered that business activity had improved in the preceding three months. In contrast, on balance, fewer firms reported stock levels to be above normal.

 Additional survey data indicate that on balance, firms expected employment to remain unchanged during the following quarter. Whereas in the first quarter of 2018, firms on balance had anticipated a rise in selling prices, in the quarter under review they expected selling prices to fall.

 Industrial confidence declines

Confidence in the industrial sector fell to 4 in the second quarter of 2018, from 14 in the preceding quarter, but still stood above its long-term average of -3.

The fall in industrial sentiment was driven by both firms' production expectations and their assessment of stock levels. During the quarter under review a smaller net share of respondents expected production to rise in the months ahead.

Furthermore, a larger number of respondents reported higher than normal stocks of finished goods in the second quarter.

Meanwhile, more firms assessed order books to be above normal for the season. Looking forward, additional survey data show that a smaller share of respondents anticipated an increase in their labour complement. In addition, firms expected their selling prices to fall in the subsequent three months.

Consumer confidence declines for the first time since the first quarter of 2017

The consumer confidence indicator fell slightly to 23 in the second quarter of 2018 from 26 in the preceding three-month period, although it still stood at very high levels.

Developments in almost all subcomponents affected the indicator in a negative way, except for unemployment expectations. In fact, on balance, more respondents expected unemployment to fall in the following twelve months.

Almost half of the decline in sentiment recorded in this quarter can be attributed to somewhat lower expectations about the general economic situation.

Additional survey data suggest that on balance, a smaller share of consumers anticipated higher inflation in the twelve months ahead. At the same time, the share of consumers intending to reduce major purchases over the subsequent 12 months increased significantly.

Confidence in the services sector remains unchanged

In the second quarter of 2018, the services confidence indicator stood broadly unchanged at 33, when compared with the preceding quarter, but edged down from 36 in the last quarter of 2017. Nonetheless, it remained above its long-term average of 23, with all the indicator's components remaining positive .

The share of firms that reported an improvement in the business situation and increased demand in the preceding months, declined. However, this was offset by a rise in demand expectations for the three months ahead.

Additional survey data indicate that when compared with the first quarter of 2018, a larger net share of respondents reported an increase in their past labour complement and anticipated an increase going forward. Also, on balance respondents foresaw no changes in prices in the three months ahead.

Confidence in the construction sector edges up

 In contrast, sentiment in the construction sector edged up to 29 in the second quarter of 2018, from 27 in the preceding quarter. This is the highest level recorded since survey results for Malta became available.

Survey results show that a decline in the assessment of order books was more than offset by a rise in the share of firms expecting higher employment for the months ahead.

Additional survey data indicate that in the second quarter of 2018, fewer respondents, on balance, reported positive developments in building activity during the preceding three months. Indeed, labour shortages remained one of the main factors limiting production in this sector, although marginally fewer firms reported this as the main factor. Meanwhile, a higher net percentage of firms anticipated a rise in selling prices in the subsequent three months.