Maltese economy hit by oil shock

A recent study conducted by the Central Bank of Malta has revealed that oil shocks have a more significant impact on the country’s economy than shipping industry shocks. The study examined the effects of global oil price swings and shipping industry disruptions on Malta’s economy, which heavily relies on the shipping industry and imported goods. The study found that both situations cause recessionary effects and put upward pressure on prices, but oil shocks have more significant effects than shipping shocks.

The study further revealed that following a global energy disturbance, prices of food, energy, and services gradually increase, while non-energy industrial goods experience more abrupt upward pressure. However, the Maltese government’s energy subsidies have helped reduce the negative consequences on economic activity and dampened inflationary pressures in food and services. Without government intervention, food and service prices would have risen by 0.5% and 0.45%, respectively, following a 10% energy shock.

The study also found that inflation in Malta follows the inflation in the euro area but is slightly more volatile in its behavior. Malta’s annual inflation in January dropped to 6.8%, the third lowest in the EU, but only because of the government’s heavy subsidies on energy, fuels, and non-processed foods. If energy and unprocessed food are excluded from the equation, Malta’s Harmonised Index of Consumer Prices (HICP) is almost a point higher than the eurozone average.

The Maltese government has set aside almost €600 million this year to keep energy, fuel, and grain prices stable. The subsidies have been running since last year when the government spent almost €500 million to maintain stability in the energy and grains sectors. The largest upward impact on annual inflation in January was measured in the Food and non-alcoholic beverages Index (+2.13 percentage points). Eurostat data released also shows that Malta’s January inflation rate was at par with Cyprus, while Spain and Luxembourg had lower rates at 5.9% and 5.8% respectively.