The Malta Fiscal Advisory Council has given the thumbs up to the government’s macroeconomic forecasts, presented within the Update of Stability Programme for 2016-2019.
The forecasts were submitted to the European Commission on April 29.
The Update of Stability Programme is used by the European Commission to assess whether a member state is on track to meet its medium-term budgetary objective. In terms of EU regulations and the Fiscal Responsibility Act, all macroeconomic projections produced by the Ministry for Finance must be assessed by the MFAC to determine whether they are sound and plausible.
On the basis of the latest available information, the MFAC said the forcasts were deemed overall to be within the endorseable range of the MFAC.
The forecasting methodologies adopted were also judged to be sound and in line with general practices.
The MFAC said it considered the real GDP growth forecasts for the years 2016 – 2019, respectively at 4.2 per cent, 3.1 per cent, 2.9 per cent and 2.4 per cent, to be achievable, also when considering the 6.3 per cent real growth registered in 2015.
“These projections are within a relatively close range to similar forecasts produced by other local and international institutions,” the council noted.
“The sources of real GDP growth are expected to fluctuate throughout the forecast horizon, with domestic demand being the main driver for growth in all years apart from 2018, where net exports are expected to be the main source of growth.
“This economic outlook is conditioned by the projected trajectory for gross fixed capital formation. In turn, this is driven by a number of investment projects which are expected to take place during the forecast horizon. The non-materialisation or slower-than anticipated progress in such public and private sector projects thus constitute a downside risk to the forecasts for the investment expenditure component within GDP,” it added, warning that a further element of downside risk to real economic growth related to the projected export performance, particularly for the outer forecast years.
The downside risks were conditioned by the assumption that the euro will retain its relatively competitive exchange rate and by the assumed positive performance of Malta’s main trading partners against a background of changing international economic conditions.
With regards to private consumption expenditure, this is expected to expand further but to decelerate from the high growth rate registered in 2015.
“The MFAC considers this trajectory to be plausible, when evaluated against the backdrop of the recent positive labour market developments, characterised by employment growth and low unemployment rates, a scenario which is likely to continue prevailing throughout the forecast horizon,” it said.
The MFAC finally noted that the forecast path for general government final consumption expenditure was characterised by an uneven growth pattern throughout the forecast horizon, based on the latest estimates prepared by the Ministry for Finance.
The plausibility of the fiscal projections for the period up to 2019 will be evaluated in depth in a separate report which the MFAC will be publishing in the coming weeks.