Hours before the announcement of the 2009 budget, Brussels is forecasting that Malta’s structural deficit will increase to 3.8% this year, 2 percentage points more than projected by the European Commission earlier this year.

According to the Autumn Economic Forecasts, issued by the European Commission in Brussels this morning, Malta’s economy will also slow down next year although it is not expected to go into a recession, as many of the other Euro area member states are expected to do.

While the average growth in the Euro area next year will be down to just 0.1% of GDP, with many member states even registering negative growths, Malta’s economy is still expected to expand by 2%.

GDP growth in 2008 is expected to reach 2.4%.

Brussels said that due to lower economic growth, it is forecasting that in 2009 Malta will also experience a slight increase in unemployment, from 5.9%in 2008 to 6.4% in 2009 and an insignificant increase in government debt from 63.1% of GDP to 63.2.

The Commission underlined that the current privatisation of Malta Shipyards, in particular the early retirement scheme offered to dockyard workers will be costing the Maltese economy 1 percent of GDP.

‘The deterioration (in structural deficit) results primarily from the expenditure side. There was a higher increase in the wage bill on account of additional recruitment and higher wages in particular in the health sector, higher subsidies given the decision to freeze water and electricity prices and the sharp rise in the oil price and early retirement schemes in preparation for the privatisation of the Malta Shipyards with an estimated one-off cost of 1 percent of GDP,’ the Commission said.

However, the Commission said that on a pre-budget basis and with the one-off cost of the early retirement schemes vanishing, the deficit is projected to decline to 2.7%of GDP in 2009 and down to 2.5% in 2010.

Commenting on the overall forecasts in the euro area, EU Monetary Affairs Commissioner Joachim Almunia described 2009 ‘as a year with a dark horizon.’

‘Recession is a real risk for all the euro area and we have to pull up our socks to make sure that we recover as soon as possible from this downward economic trend,’ he told journalists in Brussels.