Malta Fiscal Advisory Council publishes its assessment of government’s macroeconomic forecasts

On 30 April, the Malta Fiscal Advisory Council presented its assessment of the macroeconomic forecasts for the Maltese economy prepared by the Ministry for Finance as part of the Update of Stability Programme 2018-2021.

The Fiscal Council considers the official real GDP growth forecasts for the period 2018 to 2021, respectively amounting to 6.1%, 5.3%, 4.8% and 4.6%, to lie within its endorsable range. These growth rates are judged to be compatible with the assumptions employed and the estimated economic relationships. These projections also appear to be cautious, in that they represent a gradual moderation compared to the growth recorded during the previous five years.

The Council notes that the latest available real GDP growth forecasts produced by other institutions, namely the Central Bank of Malta, the European Commission and the International Monetary Fund, portray a similar scenario of gradual moderation in economic growth and range within one percentage point for practically all the available years. The fact that different independent institutions share a similar overall outlook for the Maltese economy strengthens the confidence in such forecasts.

As for the sectoral drivers of the projected expansion trajectory, the Council notes that both domestic demand and net exports are expected to contribute positively to economic growth throughout the four-year horizon. Domestic demand is expected to be the main source of growth in each of the forecast years, but its contribution is expected to vary in intensity across the years.

The volatility in investment, whose forecast growth rates range between 2.6% and 10%, is a recur- ring element of uncertainty, which can be both upside or downside. On the other hand, private consumption, which is the main component of domestic demand, is expected to grow by 4.4% in 2018, in line with the actual turnout in 2017. Subsequently it is set to ease slightly in each of the outer forecast years, to 3.3% by 2021.

The Council understands that such forecasts are driven by the expectation that labour market developments will remain benign, characterised by rising employment levels, rising real wages and low unemployment rates. With respect to the projected government consumption, the Council takes note that these are based on the updated government expenditure forecasts and the assumptions about the expected future yield from the Individual Investor Programme.

In relation to exports, the Council notes the generally stable forecast for export growth, around 3% annually. This appears consistent with the continued pick-up in Malta’s main trading partners and the positive outlook for certain sectors. In the case of imports, their growth is expected to range between 1.6% and 2.9%, with the yearly fluctuations compatible with the developments in domestic demand and its composition.

Overall, the Fiscal Council views the balance of risks to GDP growth for the period 2018 to 2021 as broadly neutral, with the possible downside risks associated to the external sector likely to be compensated for by possible upside risks related to domestic demand.

The full report, entitled ‘Assessment of the Macroeconomic Forecasts – Update of Stability Programme 2018 – 2021’ is available on the website of the MFAC http://www.mfac.org.mt