Malta: Growth continues at a sustained pace

Real GDP grew strongly in the first three quarters of 2017 and continued to surprise on the upside, reaching 7.2%. The external sector, driven by growing services exports, remained the main driver of growth in 2017.

Domestic demand was affected by a strong contraction in investment, linked to a high base effect from an extraordinary investment in transport equipment in 2016.

Residential construction, by contrast, continued to increase robustly.

Following a rebound in imports in the last quarter of the year, real GDP growth is expected to have reached 6.9% for 2017 as a whole, above the rate recorded in 2016.

The dynamics in the external sector are pushing up the current account surplus. Economic growth is projected to slow in 2018 to 5.6%.

Private consumption is expected to become the main driver of growth on the back of strong employment growth, improved consumer confidence and growing disposable income. Investment is forecast to recover, led by the residential construction sector, which is expected to continue growing strongly in 2018.

Driven by domestic demand, imports of goods and services are gaining momentum and exports are forecast to continue rising, in line with growing demand in Malta’s main trading partners.

Overall, the current account surplus is expected to stabilise. In 2019, real GDP growth is projected to moderate further to 4.5%. Private consumption is projected to remain the main driver of growth, while investment is expected to increase mainly on the back of the construction sector.

Net exports are expected to contribute only modestly to GDP growth, as domestic demand fuels imports. Headline annual HICP inflation averaged 1.3% in 2017, slightly lower than the euro area average. Relatively moderate increases in regulated fuel prices have contained overall HICP inflation. Inflation is projected to strengthen to 1.5% in 2018 and 1.8% in 2019.

Higher price growth is expected to come mainly from the services component, which is projected to rise in line with growing disposable incomes.