Island to be third best performer after Slovakia and Estonia
Malta’s economy is expected to perform much better than the eurozone average, which has entered into a “mild and short” recession, according to the European Commission’s spring economic forecasts.
Economic and Monetary Affairs Commissioner Olli Rehn said the eurozone’s economy was expected to shrink by 0.3 per cent of GDP in 2012, although a recovery would start during the latter part of the year, spilling over to 2013.
He emphasised that not all 17 euro area member states would be hit equally by the recession and Malta would be one of the exceptions.
According to EU economists, the island is expected to be the third best performer in the euro area, following Slovakia and Estonia.
Malta’s economy will grow by 1.2 per cent of GDP this year – slightly down from 1.3 per cent predicted in the Commission’s forecast six months ago. Growth is expected to accelerate next year and is now projected to reach two per cent.
On the other hand, eight EU member states are expected to be in recession, including large neighbouring economies such as Spain, Italy and The Netherlands.
Maltese exports are forecast to increase by 2.4 per cent, while imports will grow by two per cent. Inflation – projected to remain at two per cent by the end of December – will be lower than the 2.4 per cent projected for the euro area, although this will come at a cost as it is mainly due to the government’s decision not to raise electricity rates and to further subsidise Enemalta.
The Commission reports a substantial improvement in the government deficit figure, which has dropped below the three per cent of GDP threshold allowed by EU rules in 2011.
According to the projections, the deficit will fall further to 2.6 per cent of GDP by year’s end but will rise again to 2.9 per cent in 2013.
However, the outlook for Malta’s debt levels is far less rosy. The Commission is projecting an increase of 2.8 per cent of GDP in the island’s debt by the end of this year to reach 74.8 per cent – up from 72 per cent at the end of 2011.
It also warned “the deficit and debt outcomes could be higher, given risks to expenditure from the ongoing restructuring of Air Malta, the expected renewal of the public sector wage agreement and the financial situation of Enemalta.” The Commission is also projecting slower tourism activity this year, following the record year of 2011.
Also, employment is only expected to grow by 0.6 per cent. Still, at 6.6 per cent, Malta’s unemployment rate is expected to remain one of the lowest in the EU.
Finance Minister Tonio Fenech welcomed the Commission’s analysis and said it showed the country’s economy was moving forward despite the eurozone’s negative economic climate.
He said: “The Commission’s report confirms that Malta’s finances are on a sound and sustainable footing and that no further austerity measures are required.”
With regard to Enemalta’s debt, Minister Fenech said the government would soon announce the establishment of a special purpose vehicle aimed at paying back what the corporation owes over a number of years and in a sustainable manner.