Understanding the Central Bank of Malta’s outlook for the Maltese economy

The Central Bank of Malta recently issued its projections on the Maltese economy, saying it expected economic growth over the coming years to remain strong.

The Central Bank of Malta’s press release which accompanied its projections was worded carefully and with good reason: the bank bases its projections on sound economic data and complex models. These projections, as a result, are well respected not only locally, but also internationally.

While we fully appreciate the coverage given by the media to the projections, it is important to point out that The Malta Independent article attributes statements and phrases to the Central Bank of Malta which are not found in its press release.

The article’s title itself “Economy risks slowdown if political crisis persists – Central Bank” is an example of this. The Central Bank of Malta, in fact, never used the term “political crisis” in its communications but rather “the recent escalation of domestic political uncertainty.” Moreover, the bank did not claim that this uncertainty would inevitably lead to an economic slowdown. Quite the contrary, the bank’s media release said that “at the current juncture, the bank does not have as yet sufficient information to gauge this impact.”

The bank’s report, in fact, notes that “there is room for private consumption to grow faster than the baseline suggests,” reflecting the fact that the savings ratio is higher than it has been from a historical perspective. However, it pointed out that the heightened current political uncertainty could lead to the postponement of some private consumption, the extent of which would depend on the length of the period of political uncertainty.

The bank projects that private consumption growth would be 5% and 4.1% for 2019 and 2020 respectively. The projection for 2019 – if realised – would be the second highest growth in consumption since 2010, while that for 2020 would be the fourth highest. Similarly, the Bank projects an increase for investment of 12.2% in 2019 and 3.8% in 2020. If realised, these would be respectively the second highest and fourth highest growth in investment since 2010.

The Central Bank is projecting slower growth from exceptionally high levels, but it has been doing so since earlier in the year, well before recent political developments, while acknowledging that its baseline growth rates remain exceptionally high by historical standards.