Business sentiment declines and uncertainty rises, Central Bank says

Business sentiment weakened and uncertainty increased across most sectors in February, according to the Central Bank of Malta’s latest economic update.

Sentiment in the construction sector fell sharply, with the indicator dropping to -31.9 in February from 45 in January. The Central Bank cautioned that this result should be interpreted carefully due to a low response rate among firms.

The construction indicator is based on firms’ assessments of their order books and their employment expectations over the next three months. Compared with January, respondents reported that order book levels were well below normal, while significantly fewer firms expected employment to increase.

Sentiment also declined in the services sector, although it remained above its long-term average. The indicator fell to 30.9 in February from 90.9 a month earlier, largely driven by weaker expectations of demand over the coming three months, which turned negative.

This indicator reflects firms’ views on the business climate, recent demand, and expected demand in the near term.

Retail sector confidence also eased but stayed above average, declining to 16 in February from 24.5 in January. The measure is based on firms’ assessment of current and future business conditions, as well as stock levels. Higher-than-normal stocks tend to weigh negatively on the overall indicator.

Consumer confidence followed a similar pattern, falling to 3.8 in February from 6.6 in January, while remaining above its historical average. This reflects households’ views on their financial situation, the broader economic outlook, and their willingness to make major purchases over the next 12 months.

In contrast, sentiment in industry improved, rising to 16.7 from 11.2 in January. Firms reported more positive production expectations for the months ahead. At the same time, they assessed both order book levels and stocks of finished goods as below normal.

The European Commission’s Employment Expectations Indicator for Malta declined to 98.2 in February from 117 in January, falling below its long-run average for the first time since September 2025. The decrease was broad-based across sectors but was driven by the services sector.

Uncertainty also increased notably. The EC’s Economic Uncertainty Index turned positive, rising to 5.7 in February from -22.9 in January. The largest increases were recorded in industry and retail, while firms in construction and services continued to report negative readings, indicating relatively strong confidence in their ability to predict future conditions.

Despite weaker sentiment and higher uncertainty, the Business Conditions Index suggests that annual growth in economic activity in February was slightly stronger than in January.

Recent data show mixed developments across sectors. Industrial production rose in January after declining in the previous month, while year-on-year growth in retail trade remained unchanged. Services output, however, contracted in December following a flat reading in November.

The labour market remained tight, though the unemployment rate edged up slightly to 3.4% in January from 3.2% in December. This was also marginally higher than the 3.3% recorded a year earlier.

In the property market, the number of approved commercial permits in January was largely unchanged from the previous month, while residential permits declined. However, February saw an increase in both promise-of-sale agreements and final deeds of sale compared with a year earlier.

However, the bank notes that the European Commission (EC) survey data for February 2026 are based on responses collected between 1 and 19 February. As a result, the findings precede any impact on sentiment stemming from the war in Iran.