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‘Hard Brexit risks on Malta’s financial system contained’

Central Bank takes a look at local economic indicators

The Central Bank advises financial institutions to be prepared for all eventualities as a result of Brexit. Photo: Matthew Mirabelli

The Central Bank advises financial institutions to be prepared for all eventualities as a result of Brexit. Photo: Matthew Mirabelli

The potential direct adverse implications of a hard Brexit on the Maltese financial system were deemed to be “contained”, the Central Bank said.

In its 2017 financial stability report, the Central Bank said financial institutions still had to be prepared for all eventualities.

The pound fell to its lowest level against the dollar and the euro this year on the back of fears of a no-deal hard Brexit. Exposure to the pound and the UK by financial institutions as a share of assets was limited, the Central Bank noted.

Furthermore, sensitivity analysis conducted by the Central Bank indicated that banks were able to withstand a significant deterioration in their UK securities portfolio.

It said favourable economic developments continued to preserve the resilience of the financial system, with growth in 2017 of 6.6 per cent.

In another report containing its 2018-2020 economic projections, the Central Bank said consumer prices were likely to edge up to 1.9 per cent by 2020, reflecting a pick-up in domestic wage pressures.

READ: Brexit taskforce created to attract investment to Malta

Government finances were expected to remain in surplus in the coming years while the debt-to-GDP ratio was projected to decline to about 40 per cent by the end of 2020.

The general government surplus is expected to drop from 3.9 per cent of GDP in 2017 to one per cent in 2020. The Central Bank attributed this to forecast lower gross savings, mainly reflecting an assumed decline in passport sale flows.

This year, private investment was projected to decrease marginally but is expected to recover in 2019.

Residential investment is foreseen to continue growing robustly but at a slower pace when compared to the last few years as the Central Bank said the pace of the population increase was expected to slow down.

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Export growth could decelerate this year due to weakness in goods exports and lower passport sale flows. On the other hand, goods exports were projected to recover in 2019 and 2020 in line with improved foreign demand.

Nevertheless, the Central Bank noted, weaknesses in goods exports was envisaged to persist and, hence, likely to grow less rapidly than foreign demand.

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