Credit rating agency Standard & Poor's has said it expects an eventual Brexit impact on Malta to be "relatively contained" with local economic growth outpacing the eurozone average. 

In a research update published today, the agency affirmed Malta's BBB+/A-2 rating as well as its positive outlook, saying Malta had a "one-in-three" chance of getting a rating upgrade within the next 12 months. 

S&P said it expected the Maltese economy to grow by an average of 2.9 per cent a year between 2016 and 2019, with net government debt predicted to fall to 53 per cent by 2019 from last year's 58 per cent figure. 

Economic growth, the agency said, would be fuelled by increased investment in the energy, healthcare and education sectors, combined with an increased capacity in the tourism and recreation sectors. 

Hourly wages had increased by an average of 3.5 per cent between 2013 and 2015, the agency said, with S&P attributing this to "a structural shift in the Maltese economy toward more labor-intensive, higher-value added, service-based sectors." 

Brexit impact

S&P acknowledged the potential impact the UK leaving the EU could have on Malta's tourism and financial services industry. It however said that the local tourism sector was facing supply constraints and would therefore be able to make up any shortfall in the medium term. 

The impacts a Brexit would have on the financial services industry were less clear, S&P acknowledged. 

Malta-based investment funds could struggle to generate service exports if the UK's asset management industry slowed down, it said. That would affect Malta's export growth but was unlikely to create balance-of-payment risks. 

"On the other hand, Malta-based banks that have significant exposure to the UK may experience a deterioration in their asset quality, which would undermine their profitability and, as a result, nominal GDP growth in Malta," it added. 

Overall, S&P believed Malta would be able to weather a Brexit without any major economic shocks. 

Rating upgrade?

The agency also dangled the carrot of a one-in-three chance of a rating upgrade within the next year. An upgrade, it said, was likely if medium-term growth continued without a return to current account deficits, or if fiscal consolidation progressed at a faster clip than expected while contingent liability risks diminished.  

Finance Minister Edward Scicluna welcomed the report, saying it found Malta to be "broadly supportive of creditworthiness, demonstrated by structural reforms that generated employment growth and elevated the potential growth of the economy.”