Central Bank keeps economic growth forecast at 2.5%

Economic growth is projected to be 2.5 per cent this year, unchanged from the previous forecast, according to the Central Bank’s quarterly review.

After rebounding strongly in 2010, when real GDP rose by 3.2 per cent, economic activity was expected to ease this year before climbing again next year, the Central Bank said.

Real GDP is expected to grow by 2.7 per cent in 2012, a downward revision of 0.2 percentage points from the Bank’s 2010 annual report projections.

Domestic demand is likely to contribute more strongly to GDP growth after the Bank made upward revisions to private consumption and overall investment.

Following sharp contractions in the previous two years, investment spending rebounded in 2010 and the Bank is projecting this will grow by 10.2 per cent this year. It will be underpinned by significant increases in non-dwelling private investment and government investment in infrastructure.

Export growth is set to decelerate to 5.5 per cent this year after double-digit growth in 2010. Given the high import content of domestic exports, the net contribution of exports to GDP growth will be 0.3 percentage points.

Economic growth is also expected to have a positive impact on the job market with unemployment based on the Labour Force Survey projected to ease to 6.4 per cent this year after averaging 6.8 per cent in 2010. Unemployment is expected to drop further to 6.3 per cent in 2012.

The downside of higher growth is that inflation is projected to increase this year to 2.6 per cent from two per cent last year. The increase was driven by the expected developments in prices of industrial goods, the Bank said.

It also noted that inflation caused by the energy sector was expected to decline this year, reflecting the policy decision to leave electricity tariffs unchanged at last year’s levels. Inflation is projected to drop to 2.3 per cent in 2012.

However, the Bank also highlighted a number of risks that could have a negative impact on economic growth.

The strength of the global economic recovery, the fragility of foreign financial markets and the ongoing eurozone sovereign debt crisis are risks that could dampen demand for Maltese products.

Other risks include the political developments in North Africa and the Middle East.

Property prices drop for second quarter running

Residential property prices registered the second consecutive quarterly decline, dropping by 2.6 per cent in the three months to March, according to an index compiled by the Central Bank of Malta.

The Bank’s index of advertised residential property prices registered a similar downward trend as the National Statistics Office’s property index, which is based on contracted property prices.

According to the Bank, after having dropped at an annual rate of two per cent in the previous quarter, advertised property prices decreased by 2.6 per cent year on year in the first quarter of this year.

The drop was primarily due to lower asking prices for terraced houses and properties in the “other” category, which consists of townhouses, houses of character and villas. Prices for terraced houses declined for the third consecutive quarter, falling by 6.1 per cent on a year earlier. Prices in the “other” category fell by an annual 12.8 per cent, a similar drop to that experienced in the previous quarter.

The prices of maisonettes contracted marginally while the prices of apartments – which make up almost three-fifths of properties surveyed – rose by one per cent on a year earlier.

In the first quarter of 2011, the number of properties advertised for sale contracted by 9.9 per cent on a year earlier, compared with a 12.4 per cent decline in the December quarter.