Economic sentiment declines, worse than in euro area
Side heading: Central Bank's Quarterly Review
During the fourth quarter of 2018, the Economic Sentiment Indicator fell to 107.2, from 114.6 in the preceding quarter. Notwithstanding this fall, it remained above its long-term average of 100.1, the Central Bank's Quarterly Review said in its latest issue.
Sentiment declined across all sectors, with the most significant deterioration recorded among firms active in the retail sector, in construction and industry. Confidence among consumers and in the services sector was only marginally below the third quarter average.
In the fourth quarter of 2018, the ESI for Malta fell below that in the euro area, which averaged 108.9.
Confidence in the retail sector falls sharply
Sentiment in the retail sector fell to 0.9, from 13.5 in the third quarter of 2018. Thus, sentiment among retailers stood below its long-term average of 2.8.
The recent decline in confidence was driven by firms' assessment of past and expected business activity. Also, on balance, more firms reported above-normal stock levels compared with the third quarter of 2018.
Additional survey data indicate that on balance, a smaller share of respondents expected employment to increase during the following three months, while more firms anticipated selling prices to rise over the same period.
Confidence in construction declines further, but remains high from a historical perspective
In the fourth quarter of 2018, confidence in the construction sector fell to 7.5 from 20.8 in the preceding quarter, but remained well above its long-term average of -14.2.
Survey results show that both subcomponents contributed to the decline in sentiment in the fourth quarter, though the largest contribution stemmed from lower employment expectations for the next three months.
Supplementary survey data indicate that in the fourth quarter of 2018, on balance, fewer respondents reported positive developments in building activity during the preceding three months, with labour shortages remaining the dominant factor limiting production in this sector.
At the same time, a smaller number of firms anticipated selling prices to rise in the three months ahead.
Industrial confidence turns marginally negative
Confidence in the industrial sector turned negative, standing at -0.9 in the quarter under review, below the previous quarter's average of 11.0, but still above its long-term average of -2.9.
The recent fall in sentiment in this sector reflected movements across all its three sub-components. During the quarter under review a larger net share of respondents expected order book levels to decline in the months ahead. Production expectations, while still positive on balance, weakened compared with the third quarter.
Meanwhile, more firms reported higher than normal stocks of finished goods.
Additional survey data show that on balance, a smaller share of respondents anticipated an increase in their labour complement. A larger number of firms expected their selling prices to fall in the subsequent three months.
Confidence in the services sector edges down marginally from its recent high
Although sentiment in the services sector edged down to 34.9 from 36.6 in the preceding quarter, it remained well above its long-term average of 23.2.
The fall in confidence was mainly driven by respondents' weaker outlook for demand in the three months ahead, and, to a lesser extent, in the assessment of demand over the past three months.
On the other hand, the share of respondents reporting an improvement in the business situation in the preceding three months edged up marginally.
Supplementary survey data indicate that employment expectations were less optimistic than those in the preceding quarter. Also, on balance, a higher net share of respondents foresaw price increases in the three months ahead.
Consumer confidence declines marginally
The consumer confidence indicator stood at 8.0 in the fourth quarter of 2018, declining marginally from 9.0 in the preceding quarter, while still exceeding by a wide margin its long-run average of -12.2.
Consumers' expectations of major purchases over the next 12 months as well as their expectations as regards the general economic situation were the main driver behind this decrease.
By contrast, respondents assessed their financial situation over the past 12 months to have improved marginally, while their expectations for their financial situation over the following 12 months were similar to those in the third quarter of the year.
Additional survey data suggest that on balance, a slightly larger share of consumers anticipated higher inflation in the 12 months ahead and a marginally lower share of respondents expected unemployment to decrease over this horizon.