Malta’s economy is expected to continue to grow – even beyond the EU average – over the next two years, according to a European Commission forecast.
The “robust” growth comes as the EU economy, after years of stagnation, experiences “positive economic tailwinds” supported by various factors including the low price of oil and steady global growth.
In its biannual forecast issued yesterday, Brussels said Malta was expected to post a 3.6 per cent GDP growth this year before moderating to 3.2 per cent in 2016.
“The main drivers of growth over 2015 and 2016, similar to 2014, are projected to be investment, benefiting from a number of large-scale construction and energy projects and EU fund absorption (mostly in 2015),” it said. According to the Commission, another boost to Malta’s economic growth is “private consumption, on the back of increasing disposable incomes and favourable consumer sentiment”.
“Falling interest rates, bringing about a reduction in the costs of financing for firms, are expected to ease access to finance for firms, in particular for micro and small enterprises,” it added.
Brussels said the continued economic growth was expected to have a positive effect on job creation which would result in lower unemployment.
On the other hand, inflation was expected to exceed that of the euro area.
Brussels also gave an overall positive assessment of the state of the country’s public finances, predicting further lowering of both the deficit and the debt. Confirming a deficit of 2.1 per cent of GDP at the end of 2014, the Commission report said this was due to higher revenue aided by a favourable macro-economic outlook and higher intakes from various government measures including a one-time income of 0.4 per cent from a scheme for past irregular declarations of income.
Falling interest rates are expected to ease access to finance for firms
At the same time, the Commission said expenditure was also rising, driven mainly by higher spending on public wages and more subsidies related to the new bus company taking over the public transport system.
“Overall, in 2015, the deficit is expected to narrow to 1.8 per cent of GDP and to further decrease to 1.5 per cent in 2016, on a no-policy-change assumption.”
The island’s general debt is also expected to continue to decrease to 65.4 per cent of GDP by 2016.
Brussels said the only downside risks linked to its assessment were “higher-than-expected subsidies to Malta’s new public transport provider” and possible delays in the energy investment projects that could result in lower than expected economic growth.
The new gas-fired power station is already several months behind schedule.
Malta’s positive forecast comes in line with improving signs of recovering economic performance across the EU.
The Commission is forecasting an average 1.8 per cent GDP growth across the EU this year, increasing to 2.1 per cent in 2016.
“Europe’s economies are benefiting from many supporting factors at once,” it said.
Apart from low oil prices and the continued depreciation of the euro, the Commission also highlighted that quantitative easing by the ECB was having a significant impact on the financial markets, contributing to lower interest rates and expectations of improving credit conditions.
Welcoming the positive results, Finance Minister Edward Scicluna said he was very pleased the Commission was acknowledging that investment was the main driver behind Malta’s economic growth.
He said economic stability, brought about by good fiscal governance, was what had attracted and would continue to attract investment.