During the second quarter of 2019, the European Commission's Economic Sentiment Indicator declined to 96.7, from 104.5 in the preceding quarter, thus standing below its long-term average of 100.

This was reported in the Central Bank of Malta's latest issue of the Quarterly Review.

Sentiment weakened across all sectors, except among consumers. In the second quarter of 2019, the ESI for Malta fell further below that in the euro area, where it averaged 104.1. This reflected the more negative sentiment in industry in Malta.

Confidence in the services sector declines

Sentiment in the services sector fell to 16.3, from 29.1 in the preceding quarter, thus standing below its long-term average of 23.1. The fall in confidence was mainly driven by respondents' weaker assessment of demand over the last quarter and, to a lesser extent, by their expectations of demand in the coming months. Their assessment of the business situation over the past three months also weakened.

Supplementary survey data indicate that employment expectations were less optimistic than those in the preceding quarter. Furthermore, a lower net share of respondents anticipated prices to increase in the three months ahead.

Confidence in construction weakens

In the second quarter of 2019, confidence in the construction sector declined to 23.2, from 34.1 in the preceding quarter. Notwithstanding the recent decline, it remained well above its long-term average of -13.5.

Survey results show that the fall in sentiment was almost entirely driven by lower order book levels, which were assessed to be relatively high in recent quarters. On the other hand, employment expectations remained broadly unchanged. Supplementary survey data indicate that, on balance, a smaller net percentage of firms reported positive developments in building activity during the preceding three months, even though labour shortages were somewhat less pressing compared with the first quarter of the year. A marginally lower share of respondents anticipated prices to increase in the next three months.

Confidence in the retail sector falls

Sentiment in the retail sector edged down to 0 from 10.7 in the first quarter of 2019, thus falling below its long-term average of 2.8. The recent fall in confidence was driven by firms' assessment of business activity in the past three months and their expectations for the next three months.

These movements offset a decrease in the share of respondents that considered their stock levels to be above normal. Supplementary survey data indicate that on balance, both orders and employment expectations turned negative in the quarter under review.

Price expectations, which were already negative in the previous quarter, decreased further.

Industrial confidence edges down

Confidence in the industrial sector stood at -10.9 in the quarter under review, down from -2.0 in the previous three-month period, and below its long-term average of -3.1. During the second quarter of the year, production expectations, while still positive, nearly halved when compared with the first quarter of 2019.

At the same time, a higher share of firms reported falling orders. Meanwhile, the number of firms reporting above normal stocks of finished goods almost doubled.

Additional survey data show that on balance, fewer respondents anticipated an increase in employment. This result is consistent with the aforementioned decrease in orders and with an increasing proportion of firms that view insufficient demand as a factor limiting production. Meanwhile, the share of firms anticipating price increases remained positive, but edged down marginally.

Consumer confidence recovers slightly from recent declines

Consumer confidence edged up from 3.3 in the first quarter of 2019 to 4.6 in the quarter under review. Although well above its long-run average of -12.0, it remained below the record high reading recorded in the first quarter of 2018.

Consumers' expectations of major purchases over the next 12 months were the main driver behind the latest increase in consumer confidence. At the same time, consumers' outlook of the general economic situation in the 12 months ahead increased marginally. In contrast, respondents' assessment of their past and future financial situation weakened slightly.

Supplementary survey data suggest that on balance, a larger share of consumers expected inflation to rise over the next 12 months. At the same time, a lower percentage of respondents expected unemployment to fall in the months ahead.