During the third quarter of 2018, the economic sentiment indicator rose to 121, from 116 in the preceding quarter and thus remained well above its long-term average of 101.

Sentiment rose among retail firms, industry as well as within the services sector, while confidence among consumers was broadly unchanged. In contrast, sentiment declined within construction.

During the third quarter of 2018, the ESI for Malta remained higher than that in the euro area, which stood at 112.

This was revealed in the latest business and consumer surveys published in the Central Bank's Quarterly Review.

 

Confidence in the retail sector rose sharply

Sentiment in the retail sector rose to 14, from 4 in the second quarter of 2018. Thus, sentiment among retailers stood above its long-term average of three. The recent increase in confidence was driven by all subcomponents, with firms' assessment of past and expected business activity being the main drivers.

Also, on balance, fewer firms reported above-normal stock levels.

Additional survey data indicate that on balance, a substantial share of respondents expected employment to increase during the following quarter. Whereas in the second quarter of 2018, firms on balance anticipated a fall in selling prices in the three months ahead, in the quarter under review they expected selling prices to rise.

 

Industrial confidence increases

Similarly, confidence in the industrial sector rose to 11, after falling to 4 in the second quarter of 2018, and hence remained above its long-term average of -3.

The rise in industrial sentiment during the third quarter was driven by both firms' production expectations and their assessment of stock levels. During the quarter under review a larger net share of respondents expected production to rise in the months ahead. Furthermore, a smaller number of respondents reported higher than normal stocks of finished goods.

These developments offset deterioration in firms' assessment of order books. While in the second quarter of the year, orders were assessed to be above normal for the season, in the quarter under review they were below normal.

Additional survey data show that broadly the same share of respondents as before anticipated an increase in their labour complement. In addition, fewer firms expected their selling prices to fall in the subsequent three months.

 

Confidence in the services sector improves

In the third quarter of 2018, the services confidence indicator increased to 37, from 33 in the preceding two quarters, and thus remained above its long-term average of 23. All the indicator's components remained positive.

The rise in confidence was driven by all subcomponents, though the share of firms expecting improved demand for the three months ahead and those reporting an improvement in the business situation in the preceding months were the main drivers.

On balance, the share of respondents reporting improved demand in the preceding months edged up.

Additional survey data indicate that when compared with the second quarter of 2018, a larger net share of respondents reported an increase in their labour complement and anticipated a further increase going forward. Also, on balance respondents foresaw increased prices in the three months ahead.

 

Consumer confidence was broadly unchanged in the third quarter

The consumer confidence indicator stood at 23 in the third quarter of 2018, broadly unchanged from the preceding quarter, and still at very high levels from a historical perspective.

Developments in almost all subcomponents affected the indicator in a positive way, except for unemployment expectations, as marginally fewer respondents expected unemployment to fall in the following 12 months.

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

 

Confidence in construction eases for the first time since the start of 2017, but remains elevated

Sentiment in the construction sector fell to 21 in the third quarter of 2018, from 29 in the preceding quarter, but still stood above its long-term average of -16. Survey results show that both subcomponents contributed to the decline in sentiment in the third quarter, though the largest contribution stemmed from lower employment expectations.

Additional survey data indicate that in the third quarter of 2018, fewer respondents, on balance, reported positive developments in building activity during the preceding three months, with labour shortages remaining the dominant factor limiting production in this sector, followed by shortages of material and equipment.

Meanwhile, a smaller net percentage of firms anticipated a rise in selling prices in the three months ahead.