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GDP forecast to grow by 5.4% in 2018, second best in Europe

Domestic demand is set to become the main driver of growth

Malta's economic growth is set to remain robust but to moderate over the forecast horizon, the European Commission said in its summer forecast on Thursday.

The forecast for all EU countries was issued by Pierre Moscovici, the commissioner responsible for economic affairs. 

Domestic demand is set to become the main driver of growth in the second half of 2018, underpinned by an expansion in public and private consumption.

Investment is expected to recover strongly in 2019, supported by projects in the health, technology and telecoms sectors. The robust growth rate of residential investment is set to moderate in line with the expected slowdown in population growth (which it did not explain).

The commission said the economic momentum is expected to further support employment creation, on the back of record-low unemployment and increasing labour supply (resulting from the inflows of foreign workers and the rising
participation of women in the labour market).

Overall, real GDP is forecast to increase by 5.4% in 2018 (second only to Ireland) and 5.0% in 2019. It was 6.4% in 2017.

The commission said downside risks are mainly related to geopolitical uncertainties, which could be particularly relevant for Malta’s small and open economy, and the possibility of a slower-than-expected recovery in investment.

It said regulated prices in the electricity market and moderate wage dynamics have helped keep inflation slightly below the euro area average.

Headline annual HICP inflation is forecast to gradually pick up over the forecast horizon to reach 1.8% in 2019, driven by price pressures in the services component.

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