The government expects economic growth to accelerate next year, with GDP set to grow by 3.5 per cent in real terms from 3.2 per cent this year, Finance Minister Edward Scicluna said in the Budget speech this evening.

He said the Maltese economy is expected to continue growing over the 2016-2017 period, rising by 3.4 per cent in 2016, and slowly converge to its potential and reach 2.9 per cent in 2017.

Employment growth is expected to maintain a strong momentum and rise by an average of 2.0 per cent in 2014 and 2015.

Inflation should remain relatively low during this year at an average of 0.7 per cent but is expected to increase moderately to 1.5 per cent in 2015.

After bringing the deficit down from 3.7 per cent in 2012 to 2.7 per cent of GDP in 2013.

The government is aiming to reach a deficit target of 2.1 per cent of GDP for this year, and to continue on this path of fiscal consolidation and further reduce the deficit to 1.7 per cent of GDP in 2015.

Government expenditure is projected to rise by six per cent in 2014, reflecting increases in compensation of employees and intermediate consumption. Gross fixed capital formation is expected to remain strong over the second half of the year and increase by 14.3 per cent in 2014.

Exports are expected to grow marginally by 0.7 per cent during 2014, reflecting the subdued external demand counter-balanced by a weaker exchange rate. The strong domestic demand, particularly investment, is expected to drive up imports by 1.9 per cent, resulting in a negative net trade contribution to growth.