MALTA: European Commission expects strong economic growth to be maintained.

As published on timesofmalta.com, Monday 16 May, 2022.

Malta's economy is set to continue expanding, by 4.2% in 2022 and by 4.0% in 2023, while withstanding the impact of the increase in commodity prices and the Russian invasion of Ukraine, the European Commission said on Monday in its Spring economic forecast.

It said the main factors supporting growth are robust domestic demand, growth in exports of services and strong recovery in tourism.

The general government balance is projected to remain in deficit, however decreasing in 2022 and 2023, following winding-down of pandemic-related policy support on the background of economic growth.

The Commission's analysis broadly follows the same lines as those by ratings agency Fitch which last week affirmed Malta's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'A+' with a stable outlook.

The Commission's findings were welcomed by the prime minister in a tweet.

The Commission said that with both exports and imports growing, Malta's current account balance is expected to remain positive. The limited downside risks deriving from the June 2021 decision of the Financial Action Task Force to include Malta in the list of jurisdictions under increased monitoring (greylisting) have further receded following the FATF initial determination, in February 2022, that Malta has substantially completed its action plan. A final decision is expected in June 2022.

The forecast says the government deficit is set to gradually decrease while remaining elevated. The deficit is estimated to have decreased to 8.0% of GDP in 2021, its high level explained by public expenditure related to pandemic-related measures which were maintained in 2021.

It is projected to decrease to 5.6% of GDP in 2022 and further to 4.6% in 2023. The government debt-to-GDP ratio is projected to increase marginally to 58.5% in 2022 and reach 59.5% in 2023 as the negative primary balance is only partially compensated by the nominal GDP growth.

The commission notes that Malta was able to cushion the impact of the pandemic on the labour market thanks to fiscal support. Employment was estimated to have grown by 1.6% in 2021, while the wage support measures remained in place. Employment is expected to continue to increase over the forecast horizon.

"This positive development in the labour market is congruent with labour shortages being reported by firms," it says.

Malta’s unemployment rate, at 3.5% in 2021, is set to remain broadly stable in 2022 and 2023.

The commission notes that the government has frozen energy prices. Still, the higher inflation in the first quarter of 2022 showed that pressure from increasing international energy and commodity prices was starting to affect Malta via transport costs and imported goods. As a result, inflation is set to rise to 4.5% in 2022. As these factors are expected to persist into 2023, inflation is expected to remain elevated at 2.6%.

Tax revenues resumed growth in 2021 and are expected to continue to increase in 2022 and 2023, following the positive economic growth dynamics. Revenues from social contributions also increased in 2021 and are expected to continue increasing over the forecast horizon, supported by the good performance of the labour market.

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