Malta looks like it will manage to cut its deficit and debt quicker over the next 24 months while keeping a steady economic growth, according to the spring economic forecasts published in Brussels.
This has led the European Com- mission to revise its projections for the island’s debt and deficit down- wards while keeping the same forecasts for economic growth.
The Commission said that, when compared to its analysis of Malta’s economic development six months ago, it seemed the island was moving at a quick pace, albeit more moderately than the “strong rebound” of 2010 when its economy registered the fastest growth in the eurozone at 3.7 per cent of GDP.
The Commission’s forecasts, which are traditionally on the con- servative side, show Malta’s econ- omy will this year grow by two per cent, increasing further to 2.2 per cent in 2012. At the same time, the island’s deficit is expected to fall to three per cent by the end of this year, down from 3.7 per cent last year, and likely to remain the same in 2012.
Six months ago, when the Com- mission published its latest forecast, Brussels was not convinced the government would manage to keep its deficit low and it was predicting a public deficit of 3.3 per cent by the end of 2012.
The Commission is also forecast- ing a better scenario than last autumnfortheisland’sdebt,which over the past three years has shot upwards by some 6.5 per cent, particularly due to the recession and the closing of the shipyards.
According to the Commission, Malta should end 2012 with a debt of 67.9 per cent of GDP; three per cent below the autumn forecast.
The Commission underlined that these projections, which in every aspect apart from inflation corre- spond to a better performance when compared to the eurozone’s average, were based on a no-policy- change scenario.
However, it specified that the ongoing crisis in Libya and the restructuring of the national airline, Air Malta, could negatively affect the island’s economic performance.
“The upcoming restructuring of Air Malta may give rise to additional government expenditure, thereby entailing upward risks for both the deficit and debt projections,” the report states.
It adds that ongoing geopolitical tensions in the Mediterranean/ North Africa region could deal a blow to tourist arrivals this year and impact net exports, more generally in view of Malta’s positive trade balance with Libya.
Inflation is the only main economic indicator expected to be higher than the eurozone’s average, as already happened in the past two years. According to the Commission, average inflation this year is expected to rise to 2.7 per cent, from two per cent in 2010, before decelerating to 2.2 per cent in 2012.
“Some factors that are expected to push up services’ prices are the announced increase in VAT for hotel and private accommodation as of 2011 and improving demand conditions in 2012.”
The report says: “Given Malta’s high dependence on imported oil for energy, the energy component of the HICP is also expected to be a strong driver of inflation in 2011, with a slight deceleration expected in 2012.”
Food inflation is also projected to be rather dynamic in 2011 as a result of increases in global food prices and the increase in excise duties on alcohol and tobacco in the Budget for 2011 but is expected to ease in 2012.
According to the Commission’s forecast, employment will continue to increase and Malta will manage to maintain one of the lowest unemployment figures in the eurozone.
Both exports and imports are expected to grow by about six per cent over the 2011-12 forecast period.