EU forecasts strong economic growth

Malta's economy is expected to continue growing at a faster pace than the EU average in the coming two years, according to the European Union's autumn economic forecasts issued in Brussels yesterday.

The study, compiled by the economic services of the European Commission, predicts an economic growth of 2.8 and 2.9 per cent in GDP respectively for 2008 and 2009. On the other hand, the average growth expected in the euro area is predicted at 2.2 and 2.1 per cent in the same two years.

Contacted by The Times, the Parliamentary Secretary at the Finance Ministry, Tonio Fenech expressed the government's satisfaction at the fact that the EU study confirmed that the Maltese economy is not only picking up but also passing through a good phase. The government is expecting an even better performance than the Commission's predictions.

"It is very evident that our economy is doing well. The government's policies are now bearing fruit. Although the EU is predicting that we will grow at a faster pace than the EU in the coming two years, our figures are even better as we think we should reach a four per cent growth next year."

According to the European Commission, Malta's economic performance is on an upward trend mainly because it is being driven by private consumption.

"This is attributed to the improvement in disposable income as a result of the increase in employment and earnings as well as the revised lower income tax rates and the fall in the rate of inflation," it said.

Another contributor, according to the Commission, is more cash in the Maltese economy as a result de-hoarding in anticipation of the euro changeover.

On the other hand, the report cited a slowdown in exports this year. However, the Commission is predicting a change next year when exports should start picking up again registering an increase of 1.2 per cent in 2009.

Employment is also expected to keep its positive trend with low unemployment.

"Job creation during the forecast period is expected to be generated mainly by the services sector. As a result, the unemployment rate is anticipated to progressively decline to 5.5 per cent of the labour force by 2009."

According to the Commission, despite high oil prices, inflation is expected to slow down significantly to 0.8 per cent in 2007. This mainly reflects declines in tourist accommodation prices as well as the authorities' decision to keep electricity and water charges to consumers almost unchanged.

However, the report says that in 2008 "headline inflation is anticipated to rise to about 2.5 per cent, primarily reflecting higher food prices".

Asked about this, Mr Fenech said the government will continue to try to mitigate the cost of living but admitted that the international cereal market situation is not helping.

"Cereals are becoming dearer and we have to make sure we keep our costs as low as possible. Our own predictions are that we are managing to control inflation but it is true that we, and all of the EU, is facing an uphill struggle in this area."

The report confirms the positive results obtained over the past three years in the public finances sector.

"Taking into account the 2008 budget, the deficit for 2008 is projected to decline to 1.6 per cent of GDP."

Government debt is also expected to continue dropping.

"Under a no-policy-change scenario, the debt ratio is projected to decline further to about 50.25 per cent of GDP in 2009. In 2006 the debt level was 64.75 per cent of GDP."