Euro­pean Com­mis­sion fore­casts sus­tained eco­nomic growth for Malta

Malta Independent - - News -

• • Large-scale health, tourism and real es­tate projects ex­pected to boost pri­vate in­vest­ment

Cap­i­tal ex­pen­di­ture to in­crease on the back of cap­i­tal trans­fer to Air Malta for the pur­chase of land­ing rights (equiv­a­lent to around 0.5% of GDP).

An ex­pected fall in the pro­ceeds from Malta’s cit­i­zen­ship scheme com­pared to last year should con­tribute to a de­crease in the fis­cal sur­plus

The Euro­pean Com­mis­sion yes­ter­day pre­dicted that Malta’s strong GDP growth is set to con­tinue as do­mes­tic de­mand re­places net ex­ports as the main en­gine of eco­nomic ac­tiv­ity.

The in­ter­na­tion­ally ori­ented ser­vices sec­tor, mean­while, con­tin­ues to un­der­pin the large cur­rent ac­count sur­plus.

In­fla­tion, how­ever, is ex­pected to pick up as wage pres­sures start gain­ing pace. The govern­ment bal­ance is mean­while pro­jected to be mod­er­ate but in the sur­plus area.

Good eco­nomic per­for­mance in the first half the year

Malta’s eco­nomic growth is pro­jected to re­main ro­bust, the Com­mis­sion as­sessed yes­ter­day. Real GDP rose by 6.7 per cent in 2017, driven by strong growth in net ex­ports. In the first half of 2018, real GDP growth slowed mod­er­ately com­pared to 2017.

Pri­vate con­sump­tion growth ac­cel­er­ated, while net ex­ports de­clined as a re­sult of rapid im­port growth in the sec­ond quar­ter.

Busi­ness and con­sumer con­fi­dence in­di­ca­tors re­main high and real GDP growth is ex­pected to av­er­age 5.4 per cent in 2018.

Do­mes­tic de­mand ex­pected to drive growth

Growth is ex­pected to grad­u­ally ease over the fore­cast hori­zon to an an­nual av­er­age rate of 4.9 per cent in 2019 and 4.4 per cent in 2020. Do­mes­tic de­mand is set to be the main driver of growth, sup­ported by strong in­vest­ment growth.

Var­i­ous in­vest­ment projects co-fi­nanced by EU struc­tural funds have started and will boost pub­lic in­vest­ment in the sec­ond half of 2018.

In 2019, the on­set of large-scale projects in the health, tourism and real es­tate sec­tors is ex­pected to boost pri­vate in­vest­ment.

Pri­vate con­sump­tion is set to re­main dy­namic, on the back of in­creas­ing labour mar­ket par­tic­i­pa­tion and dis­pos­able in­come.

Ex­port growth, mean­while, is ex­pected to slow down over the fore­cast hori­zon from the high growth rates reg­is­tered in re­cent years, in line with the pro­jected mod­er­a­tion in global de­mand, while im­ports are ex­pected to rise, driven by in­vest­ment growth.

The cur­rent ac­count bal­ance is set to re­main at his­tor­i­cally high lev­els, un­der­pinned by the large ex­ter­nal sur­plus of the in­ter­na­tion­ally ori­ented ser­vices sec­tor.

Strong labour mar­ket per­for­mance to lift wages and prices

Em­ploy­ment growth is ex­pected to re­main strong, but to mod­er­ate over the fore­cast hori­zon as eco­nomic growth eases.

In­creas­ing labour sup­ply has helped to keep wage pres­sures con­tained, de­spite strong em­ploy­ment growth and low un­em­ploy­ment, which is pro­jected to re­main around four per cent in the next two years.

As a re­sult of the tighter labour mar­ket, wage pres­sures are ex­pected to strengthen and lead to higher growth in com­pen­sa­tion per em­ployee. As a re­sult, growth in unit labour costs is pro­jected to rise to 1.9 per cent in 2018 and to re­main broadly sta­ble over the fore­cast hori­zon.

Fol­low­ing a pe­riod of mod­er­ate price pres­sures, head­line in­fla­tion be­gan to ac­cel­er­ate in the sec­ond quar­ter of 2018, partly re­flect­ing an in­crease in the weight of ac­com­mo­da­tion ser­vices in the price in­dex, as well as the rise in in­ter­na­tional oil prices.

In­fla­tion is set to pro­gres­sively rise over the fore­cast hori­zon on the back of wage growth, and should reach around two per cent in 2020.

Broadly bal­anced risks to the out­look

Risks to the macroe­co­nomic out­look ap­pear to be broadly bal­anced, ac­cord­ing to Com­mis­sion’s as­sess­ment.

As Malta’s trade-to-GDP ra­tio stands at around 250 per cent. Fur­ther es­ca­la­tions in global trade ten­sions would im­ply par­tic­u­lar down­side risks to Malta’s growth pro­jec­tions. On the up­side, do­mes­tic de­mand may ex­ceed growth ex­pec­ta­tions if in­vest­ment rises faster than an­tic­i­pated and em­ploy­ment growth sur­prises on the up­side, push­ing up house­holds’ con­sump­tion.

Fis­cal sur­plus ex­pected to de­cline

In 2018, the govern­ment sur­plus is pro­jected to de­crease to 1.3 per cent of GDP, from 3.5 per cent in the pre­vi­ous year.

Tax rev­enue growth is ex­pected to be lifted by high nom­i­nal GDP, sup­ported by favourable macroe­co­nomic and labour mar­ket con­di­tions, high cor­po­rate prof­its and con­sumer de­mand.

An ex­pected fall in the pro­ceeds from Malta’s cit­i­zen­ship scheme com­pared to last year should con­tribute to a de­crease in the fis­cal sur­plus.

Cur­rent ex­pen­di­ture is pro­jected to be dy­namic in al­most all com­po­nents, only partly mit­i­gated by de­creas­ing in­ter­est ex­pen­di­ture.

Pub­lic in­vest­ment net of EU fund­ing is pro­jected to in­crease only slightly, while the im­ple­men­ta­tion of in­vest­ment projects co-fi­nanced by the EU is ex­pected to ac­cel­er­ate.

Cap­i­tal ex­pen­di­ture will in­crease also on the back of a cap­i­tal trans­fer to Air Malta re­lated to the pur­chase of land­ing rights (equiv­a­lent to around 0.5% of GDP).

In 2019, af­ter in­cor­po­rat­ing the ex­pected im­pact of the mea­sures in­tro­duced with the 2019 bud­get, the fis­cal sur­plus is ex­pected to de­cline marginally to 1.2 per cent of GDP. In line with still ro­bust but mod­er­at­ing macroe­co­nomic con­di­tions, and de­spite the re­duc­tion in tax­a­tion (worth 0.2% of GDP), growth in tax rev­enues is ex­pected to slow down some­how to­wards the growth rate in nom­i­nal GDP.

Also, the pro­ceeds from the cit­i­zen­ship scheme are ex­pected to be lower com­pared to the pre­vi­ous year.

In spite of in­creases in so­cial spend­ing re­lated to the bud­get mea­sures, cur­rent ex­pen­di­ture growth is pro­jected to weaken and in­ter­est ex­pen­di­ture is set to marginally de­crease.

Net pub­lic in­vest­ment is fore­cast to in­crease marginally, as the im­ple­men­ta­tion of in­vest­ment projects co-fi­nanced by the EU is fore­cast to re­main dy­namic, while other cap­i­tal ex­pen­di­ture is ex­pected to de­crease fol­low­ing the base ef­fect from the pre­vi­ous year.

In 2020, un­der a no-pol­i­cy­change as­sump­tion, the fis­cal sur­plus is ex­pected to fur­ther de­crease to 0.7 per cent of GDP, on ac­count of slightly lower pro­ceeds re­lated to the cit­i­zen­ship scheme and higher pub­lic in­vest­ment.

The struc­tural bal­ance has reached a sur­plus of around 3 per cent of GDP in 2017. It is es­ti­mated to de­crease but to re­main in sur­plus at slightly be­low 1 per cent of GDP in the pe­riod 2018-2020. The govern­ment debt-to-GDP ra­tio is fore­cast to de­cline fur­ther from 50.9 per cent of GDP in 2017 to 42.1 per cent in 2020.

Newspapers in English

Newspapers from Malta

© PressReader. All rights reserved.