Economy ‘on the right path’
European Commission lifts sanctions threat as deficit level improves
Malta no longer faces the risk of EU sanctions after a positive verdict on its finances and economy was issued yesterday by the European Commission.
Brussels proposed lifting the Excessive Deficit Procedure it launched in 2009, when the island’s deficit rose above four per cent of GDP, and has forecast a relatively healthy 1.6 per cent economic growth next year.
An EDP is triggered when a member state exceeds a deficit-to-GDP ratio of three per cent. A deadline is established for the situation to be corrected, which if not done could eventually lead to financial sanctions.
Malta succeeded in reducing its deficit to 2.7 per cent by its deadline, the end of last year, but the Commission postponed its decision to recommend lifting the procedure so it could ascertain Malta’s long-term performance.
“We have now come to the conclusion that without any change in policy Malta’s deficit is expected to remain under the three per cent threshold and thus we will be recommending lifting Malta’s EDP,” the EU’s Economic and Monetary Affairs Commissioner Olli Rehn told a press conference in Brussels, yesterday.
The Commission’s recommendation is expected to be forwarded to the EU’s finance ministers’ council for their approval.
In its Autumn Economic Forecasts for the 27 EU member states, published yesterday, the Commission highlighted Malta’s strong economic performance in the past year despite the economic turmoil on the continent.
The Commission said that while the euro area economy is expected to contract by -0.4 per cent of GDP this year and will only grow by 0.1 per cent in 2013, Malta is expected to close 2012 with an economic growth of one per cent, accelerating to 1.6 per cent next year.
The EU executive also predicts Malta will continue to slash its structural deficit to 2.6 per cent, 0.1 per cent less than in 2011, while debt levels are expected to reach 72.3 per cent, up from 71 per cent at the end of last year.
“Economic growth rebounded in the second quarter of 2012 and soft indicators suggest it is still picking up in the second half of this year,” the report states.
“For 2012 as a whole, real GDP is forecast to expand by one per cent, driven entirely by net exports, which benefit from improved external competitiveness and a remarkably resilient tourist sector.”
Compared to the other 16 euro area member states, the Commission’s forecasts put Malta in third place in terms of expected GDP growth in 2013, just behind two other small economies, Estonia and Slovakia.
At the same time, most of the rest of Europe is expected to remain in recession.
Other improvements forecast by the Commission’s economists include an increase in employment, lower unemployment levels and a rise in domestic demand and exports in the coming two years. On the downside, the Commission has again pointed at higher inflation than the eurozone average.
“Energy inflation is forecast to strengthen under the assumption of an increase in electricity prices. Harmonised Index of Consumer Prices in 2012-14 is projected to slightly outpace the average for the euro area.”
Welcoming the overall results of these forecasts, Finance Minister Tonio Fenech said the Commission has given Malta’s finances good marks.
“We now have the assurance that our economy is on the right path and the next Budget will be planned on this solid foundation,” he said.
Minister Fenech also onfirmed that the Government was planning to present its next Budget in Parliament during the last week of November.