Malta 'paving the way' for economic recovery

An analytical economic forecast issued by the European Commission yesterday predicts that Malta will be making a recovery over the coming two years although this will happen in slow doses.

The autumn economic forecasts report was discussed during the weekly European Commission meeting yesterday and launched formally during a press conference in Strasbourg by Economy and Monetary Affairs Commissioner Joaquin Almunia.

The report refers to the high oil prices affecting the world economy and says that this can result in a slowdown in economic growth across the EU. Malta is also expected to face similar difficulties because of the price of oil.

Commissioner Almunia said that the 2005 growth forecast for the EU would be affected by the surge in oil prices although he does not expect oil prices to remain above $50 a barrel.

The EU is expecting a GDP growth of 2.3 per cent in 2005 and 2.4 per cent in 2006. Malta is expected to register an economic growth during the same years although this is expected to be lower than the average EU forecast, the report says.

It says that for 2005 and 2006, Maltese private consumption is expected to gain momentum and thus become the main growth driving force. However, public consumption is projected to keep decelerating and remain rather flat. The report notes that the gradual completion of public investment projects will moderate investment.

"All in all, the joint contribution of domestic demand and stock building should remain almost at one per cent. Conversely, the contribution of the external sector is foreseen to increase gradually to reach almost one per cent stemming mainly from exports recovery. On these basis, GDP growth is set to speed up to 1.5 per cent and 1.8 per cent in 2005 and 2006 respectively."

In the case of costs and prices, the EU report refers to the current oil prices and its effect on the Maltese economy. It states that "this has not yet fully impacted on costs and prices due to the time lag between rises in international market and the moment they are reflected on the internal energy market".

However, the report says that despite subdued internal demand, the harmonised index of consumer prices will rise to 3.7 per cent in 2004, reflecting higher fuel prices and the increase of VAT rates. The impact of the latter will dilute in 2005 and 2006, bringing the cost of living index down to 3.1 per cent and 2.6 per cent respectively.

The EU is also predicting a slow recovery in the labour market situation. It says that "in accordance with sluggish economic recovery, job creation will remain modest. Moreover, slow growth and on-going restructuring in the manufacturing sector are likely to increase the unemployment rate to 8.4 per cent in 2004. As economic recovery gains momentum and the real unit labour cost increases remain modest, the unemployment rate should gradually improve in subsequent years".

With regard to the public finances situation, the EU is also seeing improvements in the current situation in Malta. It said that the general government deficit is foreseen to fall from 9.6 per cent of GDP in 2003 to 5.1 per cent of GDP in 2004.

"It will follow a downward path and reach four per cent of GDP in 2005 and 3.3 per cent in 2006. Gross public debt is expected to increase from 70.3 per cent of GDP in 2003 to 74.2 per cent in 2006," it says.

The report notes that since the Maltese government will present the 2005 draft budget only by the last week of November, these forecasts do not take into account a number of measures which are not mentioned in the convergence programme with sufficient detail and affect current revenues and expenditures.