Central Bank cuts growth forecast for 2003 sharply

The Central Bank of Malta has taken a far more pessimistic outlook for the Maltese economy during 2003, in the light of new information on both the external environment and domestic developments.

Its forecast for real GDP growth has now been cut to a range of 1 to 1.3 per cent, from the previous range of 3.1 to 3.7 per cent published in its annual report in April.

This revision was prompted by a deterioration in growth prospects for the semiconductor industry, the continued drop in inventories and the worsening of the external balance.

In its quarterly review for September 2003 published yesterday, it analyses economic and financial developments in Malta and abroad during the second quarter of 2003 and presents a revised outlook for the Maltese economy during 2003 as a whole.

It also includes the results of the bank's latest business perceptions survey, which was carried out between July and August, and which showed that after the surge in optimism that had followed the referendum and election results, business sentiment returned to its previous, relatively cautious mood.

Furthermore, in subsequent months, the number of those registering as unemployed continued to rise, while the year-on-year inflation rate turned negative, suggesting that economic activity remained subdued even during the third quarter.

The bank said that growth in 2003 was expected to be driven by domestic demand.

Government consumption is forecast to rise, while investment growth is expected to accelerate, mainly underpinned by higher government expenditure on capital projects.

By contrast, external demand is expected to remain weak, with exports projected to grow only marginally, but imports are expected to rise more strongly, fuelled by public spending.

As a result, the deficit on the external goods and services account is expected to widen to between 6.5 and 6.7 per cent of GDP.

Slow economic growth is also expected to push up the unemployment rate, albeit by less than had originally been anticipated.

The 12-month moving average inflation rate is projected to end the year in the 1.4 to 1.6 per cent range.

The September issue of the Quarterly Review is available on the website of the Central Bank of Malta.

www.centralbankmalta.com