MALTA NIPPREMJAW IL-BŻULIJA ECONOMIC SURVEY

Transcription

1 MALTA NIPPREMJAW IL-BŻULIJA ECONOMIC SURVEY 2014

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3 Economic Survey November 2014 Economic Policy Department Ministry for Finance 17 th November, 2014

4 CIP Data Economic Survey November 2014 / Economic Policy Department. - Valletta : Ministry for Finance, p. 24 cm. ISBN: The following symbols have been used throughout this document:... to indicate that data are not available; 0 to indicate that the figure is zero; - to indicate that data are not applicable or cannot be determined; to indicate that the figure is negligible; National Accounts estimates and other statistics which appear in this Economic Survey are provisional and subject to revision. Figures may not add up due to rounding. This document is based on statistical information available up to 31 st October Printed at the Government Press Price: 5.00

5 Contents 1. Executive Summary...3 page 2. Economic Growth...9 The International Context...9 The Maltese Economy...10 Private Final Consumption Expenditure...17 General Government Final Consumption Expenditure...17 Gross Capital Formation...18 Foreign Demand and Supply...19 Sectoral Growth in Gross Value Added...20 Gross Domestic Product from the Income Approach...23 Gross National Income Employment...31 Labour Market Developments...31 Recent Employment Trends...31 Developments in the Unemployment Rate...34 General Labour Market Developments in the Euro Area and the EU...37 Sectoral Employment...40 Private Sector Employment...43 Public Sector Employment...48 A Profile of Registered Unemployed under Part Part-time Activity Productive Activities...59 Industrial Turnover...59 Manufacturing Performance...60 Computer, Electronic and Optical Products...60 Food Products...60 Basic Pharmaceutical Products...61 Other Manufacturing...61 Printing and Reproduction of Recorded Media...61 Motor Vehicles, Trailers and Semi-Trailers...62 Economic Survey November 2014 i

6 Other Non-Metallic Products...62 Electrical Equipment...62 Agriculture and Fisheries...70 Agriculture...70 Fisheries Services Activities...79 Tourism...79 Monthly Distribution...80 Tourist Nationality...82 Cruise Passengers...84 Accommodation...84 Employment...86 Tourism Earnings...87 Regulatory Activity...88 Malta Financial Services Authority...88 Lotteries and Gaming Authority...90 Development and Investment Promotion Prices and Incomes...95 Inflation...95 International Comparison...95 Retail Price Index and COLA...98 Sectoral Wages Foreign Trade and Payments Exports Geographical Distribution - Exports Imports Geographical Distribution - Imports Trade Balance Geographical Distribution - Trade Balance Balance of Payments The Current Account The Goods and Services Account Primary Income Secondary Income ii Economic Survey November 2014

7 The Capital and Financial Account Financial Developments Public Finance Revenue Expenditure Recurrent Expenditure Capital Expenditure International Comparison Monetary Developments Contribution of Resident MFIs to Euro Area Monetary Aggregates Contribution of Resident MFIs to Counterparts to Euro Area Monetary Aggregates The Money Market Deposit and Lending Rates The Capital Market Exchange Rate Developments Boxes 2.1 ESA Developments in Private Sector Employment in Manufacturing Employment in Gozo The Industrial Production Index Economic Accounts for Agriculture General Government Budgetary Developments Tables 2.1 GDP by Category of Expenditure GDP by Category of Expenditure - Percentage Changes Gross Fixed Capital Formation Sectoral Gross Value Added Average Weekly Wage per Employee Gross Domestic Product from the Income Side Gross National Income Labour Market Performance (Persons aged 15 and over) Distribution of Employed Persons by Type of Employment in Main Occupation Employment Rates by Age...34 Economic Survey November 2014 iii

8 3.4 Unemployment Rates by Age Employment Rates across EU Unemployment Rates across EU Labour Market Indicators Private Sector Employment Contribution to Growth in Private Sector Employment - Direct Production Employment in Market Services Contribution to Growth in Private Sector Employment - Market Services Public Sector Employment Registered Unemployed - by duration of registration Registered Unemployed - by age distribution Registered Unemployed Classified by Occupation Part-Time Employment Indicators of Industrial Activity Short-term Activity Indicators for Manufacturing Agricultural Indicators Imports of Major Agricultural Commodities Main Tourism Indicators Monthly Inbound Tourists Quarterly Distribution of Inbound Tourists Inbound Tourists by Nationality Main Types of Tourist Accommodation Monthly Accommodation Occupancy Rates Expenditure from Inbound Tourism Harmonised Index of Consumer Prices - September Harmonised Index of Consumer Prices - Annual rate of change (y-o-y) Index by Commodity Group - Average for 12 months Retail Price Index - 12-Month Moving Average Inflation Rate Average Weekly Wages - September Average Weekly Wages - September Changes in Average Weekly Wages - September September Proportion of Sampled Employees in Wage Ranges Commodity Breakdown of Exports Total Exports by Main Geographical Areas Imports by Broad Economic Category Total Imports by Main Geographical Areas Foreign Trade Trade Balances with Various Countries Balance of Payments - Goods, Services and Income Account (Net) Balance of Payments - Current Account Current, Capital and Financial Flows - per cent of GDP Government Revenue and Expenditure - January - September iv Economic Survey November 2014

9 8.2 General Government Net Lending (+) or Borrowing (-) General Government Gross Debt Contribution of Resident MFIs to Euro Area Monetary Aggregates Resident Deposits Contribution of Resident MFIs to Counterparts to Euro Area Monetary Aggregates Credit to Other Residents - Loans by Economic Activity Government Stocks - Activity on the Secondary Market Selected Indicators of the Capital Market Appendix Tables 8.1 Government Revenue - January - September Government Recurrent Expenditure - January - September Government Capital Expenditure - January - September Charts 2.1 Quarterly Gross Domestic Product Contribution to Growth in Gross Value Added Compensation of Employees Average Weekly Compensation per Employee - (excludes employers' N.I. contributions) Harmonised Deseasonalised Unemployment Rate Employment Growth Rate - Apr-June Apr-June Change in Unemployment Rate - Apr-June Apr-June Inbound Tourists Tourist Market Shares - January - December Expenditure from Inbound Tourism Harmonised Index of Consumer Prices Commodity Breakdown of Exports - January - August Foreign Trade Current Account - As a per cent of GDP Goods and Services Account Consolidated Fund Balance Government Total Revenue Government Total Expenditure Capital Expenditure Local Interest Rates and Margins Euro Exchange Rate Movements Economic Survey November 2014 v

10 Statistical Annex I. Population II. Social Indicators III. Factor Incomes in Gross National Income IV. Gross National Income and Expenditure V. Labour VI. Tourism VII. Foreign Trade VIII. Balance of Payments IX. Government Revenue and Expenditure Xa. Monetary Aggregates and Their Counterparts Xb. Contribution of Resident MFIs to Euro Area Monetary Aggregates and Counterparts vi Economic Survey November 2014

11 1. Executive Summary

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13 1. Executive Summary The global economy remains characterised by an elevated level of uncertainty. The moderate recovery that started during 2013 failed to gain momentum as weaker-than-expected activity in the European Union (EU) and other major economies during the first half of 2014 damped growth prospects. Indeed, in the first half of 2014, economic growth averaged 1.4 per cent in the EU and 0.8 per cent in the Euro Area with an uneven recovery among the various Member States. Over the course of next year, growth in the EU and the Euro Area is expected to gradually rise. However, growth prospects remain susceptible to many downside risks, particularly the increasing geo-political tensions and the lingering risks of more protracted low growth and low inflation. Labour market conditions in the Euro Area remain subdued with job creation remaining moderate and unemployment rates falling only slightly over recent months. In fact, the unemployment rate declined by 0.5 percentage points to 11.4 per cent in the second quarter of Meanwhile, the Euro Area-wide inflation rate stood at 0.8 per cent by the end of the second quarter, substantially below the European Central Bank s (ECB) price stability objective. In contrast to developments in the EU, the Maltese economy continued to register encouraging results. During the first half of 2014, the Maltese economy expanded by 3.2 per cent in real terms, outperforming growth in the EU. In nominal terms, this increase was reflected in a growth rate of 4.5 per cent, with Gross Domestic Product (GDP) standing at 3,791.0 million up from the 3,626.4 million recorded in the same comparable period last year. This performance was underpinned by buoyant domestic demand. Net exports also contributed positively as imports dropped more than exports in the period under review. Growth in Gross Value Added was attributed to a positive performance in the majority of the sectors of the economy particularly in the service sectors. Manufacturing activity was uneven with an overall decline being registered. Growth in gross value added declined in agriculture and fisheries whilst the construction industry registered a positive turnaround. Figures for the first half of 2014 indicate that the increases in the activity rate were reflected into higher employment and lower unemployment rates. The Labour Force Survey reports an increase of 1.2 per cent in employment when the second quarter of 2014 is compared to the same quarter in The Eurostat Economic Survey November

14 harmonised and seasonally adjusted unemployment rate stood at 5.8 per cent, 0.8 percentage points lower than that recorded in the second quarter of Recent labour market developments indicate that employment increased across most segments of the Maltese labour market, with a significant increase registered in private sector employment, both the services and the direct production categories. The higher level of employment in direct production was mainly a reflection of developments in the construction and the manufacturing sector while employment increases in the services sector were largely attributable to professional, technical and administrative activities, wholesale and retail, and information and communication. It is also notable that the share of females in total employment continued to increase, meaning that the underlying trend of a rising female employment rate was sustained. This also reflects Government efforts to increase the participation rate in this segment of the labour market. The performance of industrial turnover weakened during the first seven months of 2014, mainly on account of a deterioration in the export market which was not compensated by the rise in domestic sales. Employment in industry remained broadly at the level recorded during the same period last year, while the number of hours worked decreased. Nevertheless, in the same period, remuneration for industrial employees increased. The average weekly wage as derived from a study concerning collective agreements stood at up by 4.50 or 1.6 per cent over the same period last year, with the strongest increase registered in the Community & Business Sector and in the Transport Sector. The performance of the tourism industry continued to register a positive outcome in the first eight months of Inbound tourists increased by 8.4 per cent over the previous corresponding period, reaching the 1.16 million mark. The increase was broad-based with positive results recorded in almost all salient tourism indicators, including, in the nights spent by inbound tourists, which increased by 4.9 per cent and expenditure from inbound tourism which increased by 6.5 per cent. Moreover, average full-time employment in the accommodation and food service activities recorded a marginal increase of 0.7 per cent during the year to May With regards to the cruise passenger industry, between January-September 2014, arrivals that exclude the embarkations and the Maltese cruise passenger arrivals, increased by 2.7 per cent over the corresponding period in In September 2014, the domestic annual inflation rate was recorded at 0.6 per cent. During the last twelve months, inflation remained broadly constant, with an upward trend registered up to February 2014 followed by a generally lower rate of inflation thereafter. Malta s inflation rate in September 2014 was slightly higher than that recorded in the Euro Area, which stood at 0.3 per cent. 4 Economic Survey November 2014

15 The General Government deficit in Malta decreased to 2.7 per cent of GDP in During the first nine months of 2014, both revenue and expenditure components increased, with the latter registering a slightly higher increase. This resulted in a widening of the shortfall between Government recurrent revenue and expenditure in the Consolidated Fund of 12.5 million when compared to the same period in the previous year, mainly reflecting excise payments owed by Enemalta to Government. The current account surplus stood at 3.8 per cent of GDP during the first half of 2014, in contrast to the deficit of 0.6 per cent of GDP recorded during the same period in This development was mainly underpinned by the increase in the surplus on the services account together with a reduction in primary income net payments which more than offset the increase in the goods account deficit and reduction in secondary income net receipts. Meanwhile, net lending in the financial account amounted to billion, as a result of the decrease in net assets of direct investment and other investment coupled with the increase in net assets within portfolio investments and financial derivatives. These movements were also complemented by the increase in reserve assets. Short-term deposits, in particular overnight deposits, exhibited a significant increase during the Survey period reflecting depositors preferences in a relatively low interest rate environment. In addition, deposits with agreed maturity of up to three months and up to two years also contributed positively, albeit very mildly. Moreover, interest rate spreads declined very marginally remaining broadly stable. The dynamics of such a stable spread level between local lending and deposits rates reflect an overall marginal decrease in deposit rates which on the whole was higher than the minimal general decline registered in lending rates. Economic Survey November

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17 2. Economic Growth

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19 2. Economic Growth The International Context Seven years after the onset of the Great Recession, the world economy is still struggling to get back to the pre-crisis levels of performance. According to the IMF s most recent Economic Outlook, a fragile and uneven recovery has followed; whilst growth in the US and the UK has strengthened, growth in the Euro Area and Japan remains more anaemic. In emerging markets growth is expected to be subdued in Russia and Brazil, slow in China but stronger in India and emerging Asia. Data for the first half of 2014 remains positive but disappointing compared to earlier growth projections. Inflation remains subdued in most advanced economies, but particularly in the Euro Area and Japan. Downside risks have also strengthened, also reflecting increased geopolitical tensions in Ukraine and the Middle East. Whilst financial markets have remained largely up-beat and financial risk has diminished, investment activity particularly in advanced economies remained weak. Growth in global trade volumes in the first half of 2014 has also underperformed relative to global activity growth but is expected to recover albeit at a more modest pace when compared to previous recoveries. Chart Quarterly Gross Domestic Product Y-O-Y Percentage Change Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 Nominal GDP Real GDP Economic Survey November

20 The Maltese Economy 1 Amidst the fragile economic performance of most countries in the Euro Area, the Maltese economy continued to grow by an average rate of 4.5 per cent in nominal terms and 3.2 per cent in real terms in the first half of 2014 when compared to the same period in the previous year. Year-on-year economic growth rates are presented in Chart 2.1. From the expenditure side, growth was primarily attributed to the domestic side of the economy, which contributed positively by 4.3 percentage points. This was mainly driven by gross fixed capital formation which increased by 9.4 per cent in real terms as a number of large scale projects, namely the Malta-Sicily interconnector and other projects set out to reconstruct GDP by Category of Expenditure Table 2.1 million Jan-Jun Jan-Jun At Current Market Prices Private Final Consumption Expenditure (1) 3, , , , , ,110.5 General Government Final Consumption Expenditure 1, , , , Gross Fixed Capital Formation 1, , , , Changes in Inventories (29.2) (15.0) Acquisitions less Disposals of Valuables (17.9) (24.1) Exports of Goods and Services 10, , , , , ,596.1 Total Final Expenditure 16, , , , , ,205.2 Less Imports of Goods and Services 10, , , , , ,414.3 Gross Domestic Product 6, , , , , ,791.0 At Chain Linked (2010) Volumes Private Final Consumption Expenditure (1) 3, , , , , ,981.3 General Government Final Consumption Expenditure 1, , , , Gross Fixed Capital Formation 1, , , , Changes in Inventories Acquisitions less Disposals of Valuables Exports of Goods and Services 10, , , , , ,079.6 Total Final Expenditure 16, , , , , ,451.8 Less Imports of Goods and Services 10, , , , , ,045.4 Gross Domestic Product 6, , , , , ,406.4 (1)Includes NPISH final consumption expenditure Source: National Statistics Office 10 Economic Survey November 2014

21 roads and infrastructure, started to materialise. Public and private consumption also contributed positively towards economic growth as they increased by 6.8 per cent and 2.0 per cent, respectively. Growth in private consumption was in turn backed by positive employment developments and growing disposable income, lower interest rates, lower inflation and less fiscal drag. At the same time, improved consumer confidence and economic sentiment, as confirmed by Table 2.2 GDP by Category of Expenditure Percentage Changes Jan-Jun Jan-Jun At Current Market Prices Private Final Consumption Expenditure (1) General Government Final Consumption Expenditure Gross Fixed Capital Formation Changes in Inventories Acquisitions less Disposals of Valuables Exports of Goods and Services Total Final Expenditure Less Imports of Goods and Services Gross Domestic Product At Chain Linked (2010) Volumes Private Final Consumption Expenditure (1) General Government Final Consumption Expenditure Gross Fixed Capital Formation Changes in Inventories Acquisitions less Disposals of Valuables Exports of Goods and Services Total Final Expenditure Less Imports of Goods and Services Gross Domestic Product (1) Includes NPISH fi nal consumption expenditure Source: National Statistics Offi ce Economic Survey November

22 Box 2.1 ESA 2010 As from September 2014, the new framework for national accounts statistics, the European System of Accounts (ESA) 2010, came into force. This is the newest internationally compatible EU accounting framework for a systematic and detailed description of an economy. The ESA 2010 differs in scope as well as in concept from its predecessor ESA 95, reflecting developments in measuring modern economies, advances in methodological research and the needs of users. The main methodological changes with an impact on GDP are: Research and Development (R&D) spending is now considered as investment rather than current expenditure. This increased the level of EU GDP in 2010 by 1.9 per cent. Expenditure on weapon systems is now considered as investment, rather than intermediate expenditure. This increased the level of EU GDP in 2010 by 0.2 per cent. For most Member States, including Malta, the implementation of the ESA 2010 guidelines is accompanied by the incorporation of statistical improvements in data. The main changes other than those related to ESA 2010 are: Benchmark revisions, in which national methodologies and data sources are reviewed and updated. In some cases, benchmark revisions may generate a more significant revision to GDP than the changeover to ESA The harmonisation of measurement of certain illegal activities, notably prostitution and the production and trafficking of drugs. While these were already included in the official definition of GDP under the old standard, implementation varied from country to country. A common methodology for recording these activities is now being applied. While these two changes produced shifts in the GDP levels of most Member States, growth rates were almost unaffected. Indeed, the average annual difference between the level of GDP in current prices under ESA 2010 and ESA 95 over the period amounted to +3.4 per cent in both the Euro Area (EA18) and the EU28. Meanwhile, the change in the annual GDP growth rates over the years was around +/-0.1 percentage points for both the Euro Area and the EU28. Table 1 gives a preliminary assessment of the impact of methodological changes and statistical improvements on the level of GDP in 2010 (per cent of GDP) for the EU Economic Survey November 2014

23 Impact of methodoloical changes and statistical improvements on the level of GDP in 2010 (% of GDP) Table 1 GDP ESA 2010 Statistical Improvements and Benchmark Revisions Total Total of which R&D Total EA EU Belgium Bulgaria Czech Republic Denmark Germany Estonia Ireland Greece Spain France Croatia Italy Cyprus Latvia Lithuania Luxembourg Hungary Malta Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden United Kindgom Source: Eurostat Economic Survey November

24 Implementation in Malta In the case of Malta, the adoption of the new system meant that the entire time series from 1995 onwards was revised. The main changes in the GDP and GNI levels between 2010 and 2013 for Malta are presented in Table 2. GDP at current prices and impact of revisions: Table 2 per cent ESA 2010 Revision on GDP Benchmark Revision on GDP Total impact of all revisions on GDP Total impact of all revisions on GNI Source: National Statistics Offi ce Effects of ESA 2010 During this period the introduction of ESA 2010 increased the GDP by an average of 0.4 percentage points and the GNI by an average of 0.6 percentage points. The main reason for this increase is the capitalisation of R&D expenditure as Gross Fixed Capital Formation (GFCF). In 2013, this reclassification was responsible for 0.5 percentage points of the increase in the GDP level. Effects of Statistical Improvements and Benchmark Revisions Methodological improvements increased the GDP by an average of 2.7 percentage points and GNI by an average of 4.6 percentage points. The main improvements mainly relate to the financial sector. New estimates are now inclusive of special purpose entities and incorporate the results of a statistical project on the insurance sub-sector, where the compilation method was reviewed. Other enhancements include the identification of new data sources for holding companies and trusts. Reclassifications in the banking sector were also taken on board for the whole time series. The benchmark revision also incorporates updates which resulted from the finalisation of supply and use tables. Some of the most important improvements relate to the methodological 14 Economic Survey November 2014

25 Impact of Statistical Improvements and Benchmark Revisions on GDP Table 3 per cent Benchmark GDP GNI of which: SBS 2011/Other GDP/GNI Illegal Activities GDP/GNI SPEs GDP GNI Source: National Statistics Offi ce Table 4 Revisions national accounts: Results for 2010 Indicator Revision * New level Origin of main revision GDP 2.2% 6,599.5 million ESA 2010, SPEs, Insurance, GNI 4.8% 6,321.3 million Alignment with balance of payment statistics, Regular revisions, New GDP per capita 2.2% 15,922.0 million sources, Illegal activities Total exports 72.9% 10,114.1 million Integration of SPEs Exports ratio (exports as a % of GDP) 62.7% 153.3% Integration of SPEs Total imports 72.9% 10,174.2 million Integration of SPEs Imports ratio (imports as a % of GDP) 63.0% 154.2% Integration of SPEs GFCF 9.8% 1,411.6 million Expenditure of R&D and Transfer costs for Dwellings GFCF as a % of GDP 1.5% 21.4% Expenditure of R&D and Transfer costs for Dwellings Private household consumption expenditure -0.8% 3,717.9 million Expenditure on food, culture, accomodation and fi nancial services Government consumption expenditure -0.4% R&D expenditure is now recorded as 1,286.4 million capital formation Compensation of employees 0.6% 2,845.3 million New data sources Property income received from the rest of the world 309.0% 6,571.1 million Integration of SPEs Property income paid to the rest of the world 237.2% 6,853.2 million Integration of SPEs * Compared to the GDP and its sub-components in ESA1995 as published in news release 159/2014 Source: National Statistics Office Economic Survey November

26 alignment in the compilation of the national accounts and balance of payments statistics. A number of pending methodological issues where Malta was not fully aligned with Eurostat methods were also dealt with. The revisions presented from 2011 onwards include other routine updates based on the latest Structural Business Statistics (SBS) survey and the availability of financial statements. The effects of the main benchmarks revisions are summarised in Table 3, whilst Table 4 presents more the revision (together with the source of revision) in some of the main variables of national accounts for benchmark year Another major methodological improvement relates to changes in the compilation of national accounts data in real terms. To meet EU requirements, the ESA 2010 volume series of quarterly national accounts shall be calculated at chain-linked prices rather than at constant base-year prices as was the case under ESA In addition, the reference year for the GDP calculated with the chain-linking method was moved from 2000 to This new method provides a better description of economic changes, yet users should be cautioned that as a result of this change, levels of sub-components of GDP in real terms do not add up to the level shown by aggregate categories. Non-additivity arises for purely mathematical reasons and does not reflect low quality of calculations. More information on ESA 2010, including legal documents, manuals and guidelines are available on the dedicated sections of the National Statistics Office (NSO) and Eurostat websites. the Consumers Surveys published by the European Commission, also supported the strong domestic demand registered in the first half of the year. In the first two quarters of 2014, the external side of the economy also contributed positively to economic growth. Specifically, net trade contributed 1.0 percentage point to economic growth, reflecting a decline in real imports which exceeded the decline in exports. On the other hand, stock building, acted as a downward drag on economic growth, contributing negatively by 2.1 percentage points. As a result of these developments, growth reached 3.2 per cent in real terms in the first half of the year. Data related to these developments is presented in Table 2.1 and Table 2.2 which present GDP data by category of expenditure and the respective relevant percentage changes, respectively. 16 Economic Survey November 2014

27 Private Final Consumption Expenditure The private final consumption expenditure category (defined as household final consumption expenditure and non-profit institutions serving households (NPISH) final consumption expenditure) continued to grow by an average rate of 2.4 per cent in nominal terms and 2.0 per cent in real terms in the first half of These growth rates point to an improvement in private final consumption which grew by 2.1 per cent in nominal terms and 0.6 per cent in real terms during the same period of These positive developments were largely backed by strong employment growth, improved confidence and increases in disposable income which were partly supported by the reduction in utility tariffs as of April At the same time however, the proportion of private consumption in real GDP declined slightly over the course of 2014 compared to the same comparable periods in 2012 and While in the first half of 2012 this proportion stood at 60.0 per cent, the ratio declined by 1.2 percentage points to 58.8 per cent for the same period in 2013 and by 0.6 percentage points to 58.2 per cent for the same period in The increase in aggregate nominal private consumption in the first half of 2014 was broadly distributed among all the different expenditure categories, with the exception of the recreation and culture subcategory and the housing, water, electricity, gas and other fuels subcategory which declined by 4.0 per cent and 1.4 per cent, respectively. On the other hand, increases were recorded among all the other subcategories with notable performance in the transport subcategory (8.8 per cent), the hotel and restaurants subcategory (7.7 per cent), the education subcategory (7.0 per cent) and the furnishings, housing equipment and routine household maintenance subcategory (6.0 per cent). General Government Final Consumption Expenditure General Government expenditure registered an increase of 8.5 per cent in nominal terms during the Survey period. This represents a 4.8 percentage point increase over the same period of last year. In real terms, general Government expenditure increased by 6.8 per cent compared to an increase of 1.5 per cent recorded in the first half of General Government final consumption expenditure as a ratio of real GDP increased from 21.2 per cent in the first half of 2013 to 21.9 per cent in the corresponding period of 2014, an increase of 0.7 percentage points. It is pertinent to note that general Government final consumption expenditure excludes transfer Economic Survey November

28 payments, such as Social Security benefits, subsidies and grants since such items of expenditure do not reflect the production of goods and services but constitute a redistribution of funds between different sectors of the economy. Gross Capital Formation Gross Capital Formation comprises gross fixed capital formation, changes in inventories and acquisitions less disposals of valuables. The main item within this component, gross fixed capital formation (GFCF), registered a nominal increase of 10.1 per cent in the first two quarters of 2014, from million in the first half of 2013 to million in the same period of The increase in GFCF was underpinned by increases in both Government investment of 40.1 per cent, equivalent to 36.9 million, and private investment of 5.1 per cent, equivalent to 28.4 million. Growth in Government investment is largely the result of a one-off purchase of new transport equipment and other investment in road infrastructure and construction projects, whilst growth in private investment is attributed to increases in the investment of the other construction and the metal production and machinery subcategories which more than offset the declines registered in all other subcategories. Table 2.3 Gross Fixed Capital Formation Jan-Jun Jan-Jun At Current Market Prices Gross Fixed Capital Formation ( million) 1, , , , % change 26.6 (13.2) GDP ( million) 6, , , , , ,791.0 (GFCF/GDP) % At Chain Linked (2010) Volumes Gross Fixed Capital Formation ( million) 1, , , , % change 26.4 (17.1) (0.8) GDP ( million) 6, , , , , ,406.4 (GFCF/GDP) % Source: National Statistics Office 18 Economic Survey November 2014

29 Further analysis of the components of investment indicates a significant increase in the construction subsector mainly driven by increases in the other construction subcategory (24.2 per cent) and other products subcategory (5.5 per cent), which compensated for the decline in housing investments (9.6 per cent). During this period, investment in equipment also registered increases. This was attributed to the positive performance of the metal products and machinery equipment subcategory (14.4 per cent) which helped mitigate the decline registered in the transport equipment subcategory (2.3 per cent). During the first half of 2014, the ratio of GFCF to nominal GDP increased by 0.9 percentage points to reach 18.8 per cent. In real terms, the ratio increased from 17.7 per cent in the first half of 2013 to 18.8 per cent in the comparable period of Gross fixed capital formation in nominal and constant terms together with the ratio of GFCF to GDP is presented in Table 2.3. Foreign Demand and Supply Developments in the external sector, particularly the modest, uneven recovery in global activity and the resultant pick up in world trade have led to marginal improvements in the performance of the external side of the Maltese economy in the first half of 2014 over the same period of last year. During this period, real exports fell by 1.4 per cent whilst real imports fell by 2.0 per cent, so that net exports contributed positively towards economic growth. These developments represent relative improvements when compared to performance recorded in the same period of 2013 where real exports and imports declined by 3.1 per cent and 3.2 per cent, respectively. In nominal terms, exports fell by 0.4 per cent whilst imports declined by 1.7 per cent in the first half of During the first half of 2014, imports of goods in real terms registered an increase of 2.5 per cent but declined by 5.9 per cent in nominal terms as the prices of imported goods fell. Imports of services declined by 4.5 per cent in real terms but increased 0.6 per cent as price of service imports increased. A marginally higher volume of exports of goods of 0.2 per cent was recorded in the first half of However, due to a substantial drop in the price of exported goods, the nominal value of goods exports decreased by 7.5 per cent. Meanwhile, exports of services decreased by 2.0 per cent during the first half of 2014 but increased by 2.1 per cent in nominal terms as price of service exports increased. A more disaggregated analysis reveals that the nominal decline in imports of goods was primarily driven by declines in machinery and transport equipment as well as in miscellaneous manufactured articles and in food. Similarly, the decrease in exports of goods was primarily the result of declines in the exports of Economic Survey November

30 machinery and transport equipment and to a lesser extent, the result of declines in miscellaneous manufactured articles and in food. Sectoral Growth in Gross Value Added Gross Value Added (GVA) is defined as the value generated by units engaged in production activities and is obtained by taking the excess of output over intermediate consumption. Intermediate consumption consists of the value of goods and services consumed as inputs in the production process, excluding the consumption of fixed assets. Gross value added at basic prices does not include taxes less subsidies on products as output is valued at basic prices, while intermediate consumption is measured at purchasers prices. The sectoral contributions to growth in GVA during the Survey period are shown in Chart 2.2 whereas the growth in GVA at sectoral level at basic prices is shown in Table 2.4. During the Survey period, GVA at basic prices increased by 3.6 per cent compared with a 5.0 per cent increase in the same period of 2013, primarily reflecting a relatively subdued growth in turnover. Growth in GVA at basic prices is primarily attributable to a positive performance in services (except for financial and insurance activity). Manufacturing activity was uneven with an overall decline being registered. GVA in agriculture and fisheries declined whilst the construction industry registered a positive turnaround. Significant increases were recorded in the public administration and defence, compulsory social security, education, human health and social work activities sector, in the wholesale and retail trade, transportation and accommodation sector, in the professional, scientific and technical activities sector and in the arts, entertainment and recreation, repair of household goods and other services sector. During the period under analysis, GVA at basic prices in agriculture, forestry and fishing fell by 3.5 million, from 49.7 million in the first half of 2013 to 46.2 million in the same period of 2014, mainly reflecting declines in crop and animal production, hunting and related service activities. The construction industry showed signs of a robust recovery during the first half of 2014 as GVA in this sector increased by 3.1 per cent or 4.4 million when compared to the same comparable period last year. This positive performance contrasts with the declining trend that prevailed in the first half of 2012 and 2013, whereby a decline of 1.0 per cent and a decline of 2.2 per cent were registered respectively. 20 Economic Survey November 2014

31 Chart 2.2 Contribution to Growth in Gross Value Added Percentage Points Gross Value Added Arts, entertainment and recreation Public administration, education & human health Professional, scientific and technical activities Real estate activities Financial and insurance activities Information & communication Wholesale & retail; transportation; & accommodation* Construction of which Manufacturing Electricity, Water, & Manufacturing** Agriculture & fishing Jan-June 2014 Jan-June 2013 *Includes food services activities **Includes quarrying Sectoral Gross Value Added (at basic prices) Table 2.4 million Jan-Jun Jan-Jun Agriculture, forestry and fishing Mining and quarrying; manufacturing; and utilities of which Manufacturing Construction Wholesale and retail trade; repair of motor vehicles and motorcycles; transportation and storage; accommodation and food service activities 1, , , , Information and Communication Financial services Real estate activities Professional, scientifi c and technical activities; administrative and support service activities Public administration and defence; compulsory social security; education; human health and social work activities 1, , , , Arts, entertainment and recreation, repair of household goods and other services Gross Value Added 5, , , , , ,328.3 Source: National Statistics Offi ce Economic Survey November

32 During the same period, GVA in the wholesale and retail trade, repair of motor vehicles and motorcycles, transportation and storage, accommodation and food services increased by 32.7 million or 4.8 per cent. At a more disaggregated level, GVA at basic prices in the wholesale and retail trade sector in the January-June 2014 period stood at million, a rise of 3.8 per cent when compared to the same period in On the other hand, the transportation and storage sector increased by 3.9 per cent to million. Meanwhile, the accommodation and food service activities sector registered a rise of 8.5 per cent in GVA at basic prices, amounting to 11.8 million. The manufacturing sub-sector s GVA declined by 12.8 million or 3.4 per cent during the first two quarters of 2014 over the same period of This decrease follows the downward trend that prevailed in the first half of 2012 and 2013 where declines of 2.1 per cent and 3.6 per cent were registered respectively in comparison to the corresponding period of the previous year. At the same time, a more detailed analysis reveals that the decline in manufacturing was not broad-based. Indeed, significant increases were recorded in the manufacturing of fabricated metal products, except machinery and equipment ( 9.7 million), in the manufacture of motor vehicles, trailers and semi-trailers ( 3.1 million), in the manufacture of furniture ( 2.4 million) and in the manufacture of rubber and plastic products ( 1.7 million). On the other hand, there were significant declines in the manufacture of computer, electronic and optical products ( 13.6 million), in the manufacture of basic pharmaceutical products and pharmaceutical preparations ( 7.7 million), in the printing and reproduction of recorded media ( 5.6 million) and in the manufacture of textiles ( 2.2 million). During the first two quarters of 2014, the financial and insurance activities reported a decline in GVA of 7.4 per cent, equivalent to 19.7 million, when compared with the same period in At a more disaggregated level, this decline was predominantly the result of a decline in the activities auxiliary to financial and insurance activities ( 15.8 million) and a decline in the financial service activities, ( 9.8 million). A closer look, however, reveals that this decline was not broad-based but was largely prompted by overseas developments effecting two players in the industry. Specifically, one company involved in lending and brokerage reduced the scale of its operations in Malta following changes in regulations abroad whilst a subsidiary bank operating in Malta was sold as part of its parent company s restructuring plan to downsize its overseas investments. On the other hand, an increase was recorded in insurance, reinsurance and pension funding ( 5.2 million). The information and communication sector registered an increase in GVA of 22 Economic Survey November 2014

33 6.8 per cent in the first half of 2014, equivalent to 14.4 million, thus reaching the level of million by the end of the period under analysis. GVA in the professional, scientific and technical activities; administrative and support services activities increased by 27.0 million or 8.7 per cent. This increase follows the upward trend that prevailed in the corresponding period of the previous years. GVA in the public administration and defence, compulsory social security, education, human health and social work activities sector increased by 8.0 per cent during the Survey period. At the same time, GVA in the sector comprising arts, entertainment and recreation, repair of household goods and other services increased by 5.6 per cent, as the developments in the gambling and betting activities continue to underpin the positive performance of this sector. Gross Domestic Product from the Income Approach Compensation of employees increased by 5.6 per cent (or 93.4 million) during the first half of 2014 compared to an increase of 4.7 per cent for the same period of This increase was attributed to employee compensation growth registered in all sectors of the economy, with the exception of agriculture, forestry and fishing sector. Notable increases were recorded in the compensation of employees in the public administration and defence, compulsory social security, education, human health and social work activities sector, in the professional, scientific and technical activities sector, in the wholesale and retail trade, transportation, accommodation and food services sector as well as in the financial and insurance activities sector. During the first six months of 2014, the share of employee compensation to GDP at market prices increased by 0.5 percentage points to 46.1 per cent, as the growth rate in the compensation of employees exceeded the rate of GDP growth. Chart 2.3 illustrates the developments in compensation of employees at market prices over the period and the first two quarters of Compensation per employee as measured by average nominal weekly gross wages and salaries per employee stood at during the first half of 2014, up by 2.3 per cent from the same comparable period of In real terms, average weekly compensation during the first half of 2014 stood at compared to in the same period of the previous year. This represents an increase of 1.9 per cent. These robust growth rates in compensation per employee are underpinned by a strong increase in nominal compensation of employees reflecting the resilient growth in employment. It is noteworthy that data in respect of wages and salaries relates to national accounts data and hence Economic Survey November

34 Chart Compensation of Employees Y-O-Y Percentage Change Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 incorporate the earnings of both full-time and part-time primary employees, with the latter becoming increasingly more relevant, partly as a result of the increasing female participation in the economy. Furthermore, in estimating average weekly wages per employee, the segment of National Insurance contribution paid by employers is excluded from calculations. Real average weekly wage figures were obtained by deflating the latter using inflationary developments in the Retail Price Index (RPI). Developments in wages and salaries are shown in Chart 2.4 and Table 2.5. Meanwhile, taxes on production and imports increased by 11.9 per cent, equivalent to 52.7 million during the first two quarters of 2014 while subsidies increased by 19.3 per cent, equivalent to 8.2 million when compared to the same comparable period last year. This resulted in an increase in net taxes of 44.6 million or 11.1 per cent during the first half of Developments in GDP from the income approach are presented in Table 2.6. In view of the moderate increase in gross value added and the relatively strong increase in compensation of employees and net tax intake, gross operating surplus and mixed income increased moderately by 26.7 million or 1.7 per cent during the first half of 2014, compared to an increase of 5.3 per cent during the same comparable period last year. This relative slowdown in growth resulted in a decline in the ratio of gross operating surplus to GDP at market prices of 1.2 percentage points to 42.1 per cent. 24 Economic Survey November 2014

35 Chart 2.4 Euro 390 Average Weekly Compensation per Employee (excludes employers' N.I. contributions) Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 Nominal Real Average Weekly Wage per Employee* Table 2.5 Nominal Real** Value Change Value Change % % (0.2) (1.5) 2013 (Jan-Jun) (1.2) 2014 (Jan-Jun) *Excludes employers National Insurance contributions **Base year of RPI index (December 2009=100) Source: National Statistics Office Economic Survey November