27/04/2023

Central Bank of Malta Business Dialogue Publication – Second edition of 2023

The latest business dialogue held between the Central Bank of Malta and non-financial corporations shows that in the first quarter of 2023, the net share of firms reporting better business conditions improved when compared to the previous quarter. Indeed, the net percentage of firms reporting an improvement in activity over the three months preceding the interview increased from 27% in the previous quarter to 41% in the quarter under review. This is because the share of firms that reported an improvement in business conditions increased to 62% while the share of firms reporting a deterioration fell to 21%.

Looking ahead, expectations about business conditions are more positive compared to the previous round of contacts. In the first quarter of 2023, a net share of 48% expected an improvement in short-term business activity. This compares with a net share of 31% in the previous quarter.

In view of the improved supply chain conditions, cost pressures have eased considerably but remain elevated from a historical perspective. Indeed, a net 64% of contacts reported that input prices have increased in recent months, a share which is significantly lower than that reported in the previous period (82%).

In reply to an ad-hoc question referring to medium-term expectations of unit costs, companies have become less concerned about future increases in costs. Indeed, 11% of firms expected unit costs to decrease over the coming 12 months. Additionally, the share of companies which are anticipating an increase in unit costs fell from 52% in the last quarter of 2022, to 39% in the quarter under review. Given the climate of global economic uncertainty in recent years, 11% were reluctant to share their expectations, while the remaining companies expect prices to remain unchanged.

The net share of firms reporting higher selling prices stood at 42% in the first quarter of the year, down from 52% in the previous quarter. In this round of contacts firms were also asked to comment on the frequency of selling prices revisions, and most companies noted that they have been altering selling prices based on the changes in costs rather than at fixed intervals. Thus, the frequency of price changes varies significantly. Some firms change prices daily while others are bound by pre-determined contracts which only allow for infrequent revisions.

In the quarter under review, the net share of firms planning to invest more increased from 27% to 48%, as the gross share of companies planning to invest more increased from 48% to 60%, while the share of firms planning to reduce investment declined by 8 percentage points to 13%.

While business conditions and expectations improved in this quarter, the net share of firms planning to increase their staff complement fell by 12 percentage points to a net 46%. The net share of hiring firms was highest among construction and real estate firms (60%). Despite softening labour demand, businesses have continued to express concerns about labour shortages and pressures to increase wages. In fact, this publication contains a box highlighting the challenges of the labour market in this current economic climate.

Another box looks at the main challenges that businesses are facing. The most significant challenge was identified to be the availability of skilled staff, which was mentioned by 27% of firms contacted, followed by higher costs of production.

The full publication is available here.

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