IMF’s economic growth forecasts for Malta

Growing fears of a new recession, fuelled by the escalating debt crisis in the eurozone, is spreading further doom as people across the continent increasingly doubt the politicians’ ability to get to grips with the problems facing the European Union today. The EU Commission may dispute some of the fears but the markets are as yet anything but confident in the reliability of the measures being taken to combat the crisis, described as one of the worst since the war.

On the same day that EU President Herman Van Rompuy said that there was “no perspective, no forecast for negative economic growth”, Wall Street investment bank Morgan Stanley warned that the United States and the eurozone were “hovering dangerously close to a recession... over the next six to 12 months”. The risk of a new downturn stands at about one in three now.

The International Monetary Fund too has given a stiff warning, arguing that the eurozone’s debt crisis has become a menace to global financial stability.

In its world economic report, the IMF lowered its growth projections for the 17-nation eurozone to 1.6 per cent this year and to 1.1 per cent in 2012, down from two per cent and 1.7 per cent in a June forecast. If a recession does come about, Malta will naturally also be hit, as it did in the first round after the outbreak of the financial crisis two years ago. Up to now, Malta is holding its own and the latest IMF forecasts suggest that the outlook does not look bad if the situation remains as it stands today.

In fact, according to the IMF, Malta’s economic growth performance for this year has been revised slightly upwards, from 2.4 to 2.5 per cent, while projections for next year were kept at the same level as last April’s forecast, that is, 2.2 per cent. By contrast, growth in the eurozone is expected to be of 1.6 per cent this year and 1.1 per cent in 2012. Therefore, even though Malta’s economy may not be growing at a strong rate, given today’s volatile developments, it is not doing badly either. One IMF official has gone on record saying that the island is performing above average compared to the rest of the euro area.

Unemployment has continued to drop and is expected to be down to 6.2 per cent next year from the current rate of 6.9 per cent when the average in the euro area is expected to be higher than 9.1 per cent. Of course, Malta has still a long way to go before raising the employment rate to the European level but, at least, the country is making progress, not regressing.

Very often, economic growth is generally attributed to the expansion of the financial services and gaming industries. Both have been doing very well but manufacturing appears to be showing signs of improvement too. According to the European Union’s statistical agency, Eurostat, Malta’s exports rose by 54 per cent in the first half this year compared with that in the same half last year.

The share of manufacturing in total gross value added has declined in recent years but it still makes sense to promote and support manufacturing because over-reliance on a few particular industries, however important they may be now, could be dangerous, as past experience has shown only too well.

Ideally, therefore, Malta should continue to aim at having a well-balanced economic set-up.