CBM forecasts 1.4 per cent growth in 2013

The Central Bank of Malta is forecasting real economic growth of 1.4 per cent in 2013, and of 1.9 per cent in 2014.

In the Quarterly Review for the first quarter of the year, the CBM also looks at the figures for 2012, noting that the general government deficit rose to 3.3 per cent of GDP in 2012, compared with 2.8 per cent in 2011, as expenditure outpaced revenue. The general government debt increased from 70.3 per cent of GDP in 2011 to 72.1 per cent in 2012.

The Review also presents the Bank’s latest economic projections, which were completed in May 2013. Real GDP growth is expected to be driven by domestic demand, particularly private consumption.

The average HICP inflation rate is projected to moderate to 1.4 per cent in 2013 and remain at this level in 2014. Risks to both the growth projections and inflation outlook are seen to be broadly balanced.

From a policy perspective, the Bank stressed the importance of implementing measures that would bring the general government deficit back down to below the three per cent threshold this year.

Fiscal consolidation should continue thereafter to achieve the medium-term objective of a balanced budget and a sustained reduction in the debt ratio, while the domestic fiscal framework needs to be strengthened. The Bank also noted that to sustain economic growth, Malta needs to safeguard its external competitiveness through moderation in wage increases and improvements in productivity.

Regarding financial stability, banks in Malta remain profitable, liquid and well capitalised, with the core domestic banks being characterised by a strong deposit base and low reliance on wholesale funding sources.

With respect to credit risk, these banks are exposed to certain sectors which continued to underperform.

In view of this and in line with the upcoming new regulatory requirements, it would be appropriate for the banks to continue to increase their provisions and to further strengthen their capital buffers.

The first issue of the Quarterly Review for 2013 is available on the website of the Central Bank of Malta at www.centralbankmalta.org.