Malta will enjoy stable economic growth and a shrinking deficit over the coming two years, according to the winter economic forecasts published by the European Commission yesterday.

The island’s main economic indicators are also expected to stay relatively stable, the Commission said in a report welcomed by the government as a confirmation of its successful management of the economy.

The forecasts destroy every negative tenet the Opposition put forward to suggest the economy is failing

Economic growth is predicted to reach 2.1 per cent of GDP in 2014 and 2015, a slight improvement of 0.1 per cent over last year.

In the eurozone, growth is expected to reach 1.2 per cent this year and 1.8 per cent in 2015, after shrinking 0.4 per cent in 2012.

Locally, the deficit is expected to fall by 0.3 per cent to 2.7 per cent of GDP by the end of this year and stay at that level in 2015.

Malta is under the Commission’s spotlight after its deficit in 2012 surpassed the three per cent threshold that all member states must adhere to or face an excessive deficit procedure.

It is not yet known whether these forecasts and the three per cent deficit achieved by the end of last year will be enough for the Commission to recommend lifting the procedure in place against Malta.

At the same time, the Commission forecasts that the island’s debt will go up to 72.4 per cent of GDP in 2014, while the pace of employment growth will decline slightly to 2.2 per cent compared to 2.4 per cent registered in 2014.

No significant change is predicted for unemployment rates.

The latest analysis of Malta’s economic performance is in line with the scenario of recovery forecast across the continent following the recession that dominated the EU over the past three years.

In Malta, domestic demand will be the main motor behind the island’s economic growth, particularly through measures which should provide more disposable income, in particular the reduction in electricity tariffs.

“The structural reforms the government has promised to enact in the energy sector could lower costs for the economy and boost domestic demand,” the Commission’s analysis concludes.

Although inflation is predicted to remain slightly above EU average levels, the Commission said: “The reduction in electricity tariffs is projected to offset a rebound in services inflation and keep overall price inflation at a relatively moderate level by Malta’s historical standards.”

Commenting on the last Budget, the Commission said it included mostly revenue-increasing measures, such as increases in indirect taxation (mainly excise duties), a new programme to grant Maltese citizenship to foreign individuals and families – against a fee and investments in the country – and the introduction of a new tax regime for rental income.

On the expenditure side, the Commission said the Budget envisaged some restrictions on recruitment.

Though projecting a lower deficit in 2014, the Commission identified two possible risks, namely the “financial situation of Enemalta, as well as higher than budgeted disbursement related to the car VAT refund scheme”.

Reacting to the report, Finance Minister Edward Scicluna welcomed the forecast, which confirmed the government’s own economic outlook and demolished the Opposition’s unfounded “doomsday” claims.

“Blow by blow, the Commission’s forecasts destroy every negative tenet the Opposition has put forward in its attempts to suggest that the economy is failing.

“Be it on economic performance, unemployment, investment or foreign trade, this forecast confirms the government has achieved an economic turnaround and is looking forward to continued success,” Prof. Scicluna said.

Forecasts of main economic indicators