Brussels forecasts economic revival

The European Commission yesterday confirmed that Malta's economy was gaining ground and forecast an economic revival by the end of 2008.

In its spring edition of its twice-annual economic forecasts, unveiled yesterday in Brussels, the Commission said that Malta's public finances are now "on a sounder footing". It expects to see robust economic growth, lower unemployment, higher exports and low inflation over the two-year forecast period.

The Commission said that following a period of weak economic performance, Malta's GDP continued to grow at a sustained pace for a second consecutive year in 2006.

"Real GDP grew by 2.9 per cent, driven by dynamic domestic demand, in particular private and public consumption and a significant contribution by the external sector," it said.

"Private consumption increased by 2.6 per cent, as the depressing effect of higher energy process was outweighed by sustained employment creation and a continued expansion in consumer credit."

The Commission's report sees recovery continuing to strengthen during 2007 and 2008.

"GDP is expected to continue to grow at a healthy pace of three per cent in 2007 and to slow marginally to 2.8 per cent in 2008. Economic activity is forecast to be mainly domestic-driven in both years, although the small negative contribution of the external sector in 2007 is projected to turn positive in 2008.

"Private consumption is anticipated to grow at a slightly faster pace, 2.8 per cent in 2007, on account of an improvement in the disposable income brought about by lower personal income taxes, a continuation of high employment and lower energy process."

On the state of public finances, the commission says they are now "on a sounder footing".

"The budget consolidation that commenced in 2004, continued in 2006, when the general government deficit fell to 2.6 per cent of GDP as a result of lower-than-planned capital expenditure. For 2007, the deficit is expected to decline further to 2.1 per cent of GDP. The fall in the general government deficit is explained by the deceleration in current expenditure primarily due to a significantly slower rise in wages and salaries in the public sector than nominal GDP and reflects the government's drive to contain spending."

For 2008, the Commission predicts that, under a no-policy-change scenario, the deficit shall continue to decline further to 1.6 per cent of GDP.

In its report the EU executive comments that 2006 was a good year for employment with growth reaching almost one per cent.

This pace is anticipated to continue unchanged with the commission stating that "jobs are expected to be mainly generated by the services sector, in particular information technology, financial services and activities arising from the utilisation of new opportunities such as remote gaming and call centres".

The next forecast by the Commission will be issued in October.