The Malta Fiscal Advisory Council (MFAC) has described the government’s economic forecasts as “prudent”, saying that the outcome could, if anything, be more positive than anticipated.
The MFAC was commenting in its assessment of the macroeconomic forecasts for the Maltese economy prepared by the Ministry for Finance as part of the Update of Stability Programme 2017–2020.
The council said the official real GDP growth forecasts – 4.3 per cent for 2017, 3.7 per cent for 2018, 3.5 per cent for 2019 and 3.4 per cent for 2020 – appeared plausible.
The ministry’s positive outlook for real GDP growth over the forecast horizon is compatible with the assumptions employed and the estimated economic relationships, as well as being reasonably close to the forecasts published by local and international institutions, it noted.
“The anticipated moderation of economic growth appears prudent, compared to the higher real GDP growth rates which were recorded between 2014 and 2016. Likewise, the nominal GDP growth forecasts of 6.3 per cent for 2017, and stabilising around 6 per cent for the period 2018-2020, lie within the council’s endorsable range,” it said.
“The possibility that the external conditions turn out different than expected would naturally pose upside or downside risks to the forecasts, particularly for exports and inflation.”
The council noted that the main drivers of economic growth varied across the years, with domestic demand being more important in 2017 and 2019, and external demand being the main contributor in 2018 and 2020.
“The council acknowledges that the swings in the main sources of GDP growth across the years are due to the volatility in the forecast growth rate for the investment component, which in the case of Malta tends to have a high import content.
“The council considers as plausible the forecasts for the external sector, which show real exports growing faster than real imports in each year, thus making net exports a consistent source of growth along the forecast horizon. This is in line with the recent positive performance among key export sectors, as well as the external assumptions employed.”
With regards to real private consumption, the largest component within GDP, it said the gentle deceleration in growth throughout the forecast horizon – similar to that projected for real GDP – was compatible with the view that the supportive economic conditions observed in recent years were likely to persist in the near term.
The council acknowledges that the forecast real growth rate for the government’s final consumption expenditure depended on the government’s ability to adhere to its budgetary targets, particularly in terms of stringent expenditure controls and the attainment of the revenue targets.
“The council concludes that, on balance, the risks to the forecasts are more on the upside, particularly in view of the prudence shown in the assumptions underpinning the forecast estimates.”
http://www.mfac.org.mt