Updated 04/05 - Finance Ministry reaction
The European Commission has said that is expects economic growth in Malta to moderate but remain robust in 2016 and 2017 after stronger-than-expected growth last year.
"Following the peak in 2015, real GDP growth is projected to slow to 4.1% in 2016. Deceleration is set to come mainly on the back of investment, which is seen stabilising from a high base in 2015," the Commission said.
"The large energy projects that flattered investment in 2015 are expected to reach completion, while the expansion in residential construction is expected to moderate. Household consumption is also projected to decelerate somewhat but to remain robust reflecting strong employment growth and rising real wages.
"These developments will be partially offset by stronger net exports, reflecting weaker demand for imports as well as a pick-up in demand from trading partners."
Finance Minister Edward Scicluna said the report was "further confirmation that the Government is succeeding in achieving sustainability with regards to both growth and public finances through good economic and fiscal governance’’.
The Commission said real GDP growth is projected to moderate to 3.5% next year (from 6.3% last year). Household consumption is forecast to decelerate further reflecting normalisation of the saving rate, while job creation and real wages are
forecast to continue to rise at robust rates.
Government consumption is projected to increase strongly, thus also contributing significantly to growth. Investment is projected to expand moderately on the back of several additional large projects in healthcare and education.
Growth could be stronger if the reduction in the household saving rate, supported by expected gains in disposable income and population growth, carries over for the rest of the forecast horizon.
Inflation is projected to pick up from 1.2% in 2015 to 1.4% in 2016 and further to 2.2% in 2017. Acceleration is expected to come mainly from a gradual recovery in energy prices, following the electricity tariff cuts in previous years.
Downside risks are mainly linked to slippages in the investment schedule for the big projects.
Inflation is projected to pick up from 1.2% in 2015 to 1.4% in 2016 and further to 2.2% in 2017. Acceleration is expected to come mainly from a gradual recovery in energy prices, following the electricity tariff cuts in previous
years.
Services prices are forecast to pick up more strongly in 2017, thus also contributing to overall price inflation. Core inflation is projected to outpace the euro area average and to come in at 1.7% and 2.2% in 2016 and 2017, respectively.
DEFICIT REDUCTION TO CONTINUE
This year, the deficit is forecast to further decrease to 0.9% of GDP.
"The positive outlook for the labour market and consumer demand is expected
to boost current revenue growth. Current revenue is expected to increase in 2016 as a result of a rise in excise duties and higher proceeds from the citizenship programme. These are forecast to be only partly offset by the lowering in income tax for low-income earners and the phasing out of the eco-contribution," the commission said.
Current expenditure is expected to continue growing due to measures introduced with the 2016 budget, including an upward adjustment of the minimum contributory pension and the partial funding of the cost of home care for the
elderly. Public investment is expected to decrease thanks to the phasing out of the capital injection to the national airline, while the sharp decline in the
absorption of EU funds due to the beginning of a new programming period should be partially compensated for by a higher reliance on national funds.
Next year, under a no-policy-change assumption, the deficit is expected to decline
further to 0.8% of GDP thanks to favourable nominal GDP growth.
From 63.9% of GDP in 2015, the general government debt is projected to decrease further to 60.9% of GDP this year and to reach 58.3% by 2017.