EC predicts strong economic growth for Malta

Photo: Miguela Xuereb

Malta’s economy is expected to continue to grow by 4.2% and 4.0% in 2022 and 2023 respectively, while weathering the impact of rising commodity prices and the Russian invasion of Ukraine, the European Commission announced on Monday in its spring 2022 economic forecast.

He said the main factors supporting growth are robust domestic demand and growth in services exports, helped by a strong recovery in tourism.

The general government balance is expected to remain in deficit, but decline in 2022 and 2023, following the end of pandemic-related policy support in a context of economic growth.

The pressure from restrictions linked to the coronavirus pandemic has eased in 2021, the European Commission observed, saying that this has created the conditions for a very strong economic recovery of 9.4%. However, due to the Russian invasion of Ukraine, real GDP growth is expected to reach 4.2%, which is significantly below expectations in winter, although Malta has very little direct exposure to trade with Russia and Ukraine.

Growth in 2022 is expected to be driven by domestic consumption, investment and a slight positive contribution from net exports, while exports of tourism services are expected to continue to gain ground on the easing of restrictions related to the pandemic.

According to forecasts, robust public spending, in particular through the
investment, will continue to support the economy. In 2023, growth is expected
down to 4.0%, reflecting a general slowdown in performance among trading partners.

The European Commission said that with growing exports and imports, the current account balance is expected to remain positive. The limited downside risks stemming from
of the Financial Action Task Force’s June 2021 decision to include Malta in the list of
jurisdictions under heightened scrutiny or on the so-called gray list fell further following the FATF’s initial determination, in February 2022, that Malta has substantially completed its action plan. A final decision is expected in June 2022.

Labor shortages

The European Commission has observed that Malta’s unemployment rate is expected to remain broadly stable in 2022 and 2013. The impact of the pandemic on the labor market has been mitigated by government financial support, with employment increasing by 1.6% in 2021, while the salary supplement was granted.

Employment is expected to continue to increase over the forecast horizon. This positive
Labor market developments are consistent with labor shortages reported by companies.

Inflation

It was observed that the rise in inflation in the first quarter of 2022 showed that pressure from rising international energy and commodity prices was beginning to affect Malta via transport costs and imported goods, despite the government intervention to keep prices low and use hedging. As a result, inflation is expected to increase to 4.5% in 2022. As these factors are expected to persist in 2023, inflation is expected to remain high at 2.6%.

Public deficit

The European Commission also predicted that the public deficit should have
decreased to 8.0% of GDP in 2021. This still high level of deficit is mainly explained by public expenditure linked to pandemic-related measures which have been maintained in 2021, in particular the wage support scheme, subsidies utilities and rent for businesses and health care expenses. expenses.

Like the restrictions, pandemic-related economic support measures are expected to be phased out in 2022 and 2023, while several measures in response to high energy prices have recently been introduced.

Tax revenues have returned to growth in 2021 and are expected to continue to increase in 2022 and 2023, following the positive economic growth momentum. Revenue from social contributions also increased in 2021 and is expected to continue to increase over the forecast horizon, supported by the good performance of the labor market.

The deficit is expected to decline to 5.6% of GDP in 2022 and 4.6% in 2023. The
The public debt-to-GDP ratio is expected to increase slightly to 58.5% in 2022 and reach 59.5% in 2023, with the negative primary balance only partially offset by nominal GDP growth.

Prime Minister Robert Abela welcomed the forecast and said, “we are committed to sustaining growth and safeguarding the well-being of our households.”

BE THE FIRST TO RECEIVE THE LATEST NEWS

Download the Newsbook app

Comments are closed.