Economy faces year of low growth

Malta's economy will hardly grow this year, according to a forecast by the European Commission which is in sharp contrast to the government's more optimistic projection.

Figures issued by Brussels yesterday show that although Malta is still one of the few member states in the eurozone not sliding into recession, its economy in 2009 is expected to register a sluggish growth of just 0.7 per cent in its Gross Domestic Product.

Real GDP growth is then expected to recover mildly in 2010 to 1.3 per cent, in line with economic developments in Malta's main trading partners, the Commission said.

In its budget for 2009, the government had forecast that Malta will register a GDP growth of 2.4 per cent.

"Domestic demand is expected to decelerate mostly in response to lower private consumption. The labour market will be deteriorating due to a sluggish export sector and tourism is anticipated to weaken in the wake of faltering demand, especially from the British markets," the Commission said.

Malta's weakening economic performance, affected mainly by the global economic downturn, will result in a slight rise in unemployment and a fall in exports and imports.

Perhaps the silver lining is that inflation, which last month was the highest in the eurozone at an annualised five per cent, should register a dramatic drop to average out at about 1.9 per cent this year.

Also on the positive side, the island is still expected to perform much better than the majority of its counterparts in the eurozone.

Finance Minister Tonio Fenech said the forecast made by the Commission did not surprise him.

"In the current economic scenario, the Commission has revised downwards the economic forecasts for all EU member states, including Malta's. However, according to the same Commission figures, we will be performing better than the EU average and this is already good news considering the current global downturn," he said.

Asked whether the government would be revising downwards its own forecasts, Mr Fenech said it was being very cautious and following all the developments on a daily basis.

"At the moment, it is very difficult to predict what is going to happen in 12 months' time. We have not yet received the whole data for 2008, let alone 2009.

However, we are still cautiously optimistic that Malta will be able to weather the storm relatively well and that the economy will be registering a healthy growth."

According to Brussels, the eurozone's economy will contract by 1.9 per cent this year and grow by only 0.4 per cent in the following, with similar figures for the EU as a whole.

Eleven of the 16 euro area countries will be registering negative growth in 2009. The two biggest economies, Germany and France, will contract by 2.3 and two per cent respectively, while Ireland's will shrink by five per cent.

Outside the eurozone, the UK, one of Malta's biggest trading partners, is forecasting a negative growth of 2.8 per cent.

According to the Commission's analysis, Malta's economy performed well last year with an economic growth estimated to have reached 2.1 per cent, one of the highest in the eurozone.

On the other hand, Brussels referred to deterioration in the government deficit "primarily as a result of one-off costs related to early retirement schemes due to shipyard employees".

The Commission expects the deficit to start being reduced again this year and decline further to 2.5 per cent of GDP in 2010.