The economy should regain ground in 2010 after contracting by 0.6 per cent this year, according to the latest projections of the Central Bank of Malta.
In its Quarterly Review, the CBM yesterday said industrial confidence remained low although it showed slight improvement over the dismal showing in the first three months.
The economy is expected to recover in 2010 with growth projected at 0.6 per cent.
The data came in the wake of news that the economies of Germany and France registered positive growth between April and June.
Eurostat figures published on Thursday gave rise to hope of an earlier than expected recovery in Europe after these two countries posted growth of 0.3 per cent in the second quarter.
The data for Malta's second quarter is unavailable although the National Statistics Office is expected to issue the results on September 7.
The positive news from Germany and France came after a year of negative quarter-on-quarter growth.
Veteran economist Karm Farrugia urged caution in interpreting the good news, insisting the two countries are "exiting the recession but have not exited yet".
Both Germany and France are important export and tourist markets for Malta and economic improvement there would have a positive impact domestically.
The Maltese economy went into recession in the second half of last year, which deepened during the first three months of 2009 when the economy contracted by 1.3 per cent compared to the last three months of 2008.
Mr Farrugia said that despite the positive news it would be premature to declare Germany and France were out of the recession.
An economy enters a recession when it registers two successive quarters of negative growth.
"It is only fair to expect the end of a recession to come after two positive quarters. It is an improvement but they are still not out of the woods," he said, acknowledging that the improvement in Europe's two largest economies was good news for Malta.
If Germany and France do exit the recession by September, which data would be available in October, Mr Farrugia expects other countries to follow suit.
"Malta should not be an exception and the economy will pick up but generally we are lagging a quarter or two behind the rest," he said.
Improvements in Germany and France can be expected to have a positive impact on services and manufacturing in Malta, Mr Farrugia explained, but the benefit for tourism from these markets would most likely lag behind because of the sector's seasonality.
Overall, tourism will take much longer to recuperate since Malta's biggest source market, the UK, is still registering negative growth.
The UK economy contracted by 0.8 per cent between April and June, an improvement over the minus 2.4 per cent registered in the first three months.
Italy also registered negative growth of 0.5 per cent in the second quarter. Cyprus, which had until now avoided the recession, registered its second negative quarter confirming the recession reached its shores almost 12 months after the rest of Europe.
The economies of Greece, Portugal and Slovakia also registered growth in the second quarter while Lithuania continued to struggle big time, registering a contraction of 12.3 per cent.
ksansone@timesofmalta.com