Inflation to bite this year but growth at two per cent – report

Inflation will have a bigger sting in its tail this year, rising to 3.8 per cent from the two per cent reported in 2010, according to the latest economic forecast for Malta published by Ernst and Young.

The firm said this will be due to the impact of high international oil prices which are expected to trigger even higher electricity bills and transport costs.

It expects the latest sharp rise in fuel prices announced by Enemalta to be followed by comparable hikes in the price of electricity from its oil-fired generators, as the quango continues its move toward unsubsidised operation against a backdrop of rising world oil prices.

Inflation is expected to remain above the eurozone average and this may dent the performance of the overall economy, which Ernst and Young expects to grow by two per cent. This is a slower pace than the 3.6 per cent registered last year and slightly below the Central Bank’s forecast of 2.3 per cent for this year but well under the government’s relatively optimistic three per cent for 2011.

Ernst and Young said Maltese growth this year would be impacted by slowing euro-zone export markets and restrained demand caused by budget cuts.

GDP growth last year reached 3.6 per cent of GDP, among the highest rates in the eurozone.

Strong growth should resume next year in line with Malta’s above-average trend, at around three per cent per year, enabled by rising labour productivity and a structural shift toward higher value-added industries, the report says.

Malta’s public finances are expected to continue to be kept under control with a further decrease in the structural deficit. At the same time, public debt is expected to go up to 68.2 per cent of GDP.