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

The Malta Business Weekly - - FRONT PAGE -

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

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