Malta’s economy will not be subjected to any in-depth analysis by the European Commission this year because no apparent economic imbalances appear on the horizon.
However, the Commission warned that Malta should beware when it came to competitiveness because continuous losses in exports indicated long-term problems.
“There have been losses in export market shares in recent years, which, if persisting, may indicate risks of competitiveness erosion even if cost competitiveness developments moderated in 2014,” a new report issued by the Commission yesterday said.
The Commission said the economy was recovering but member states had to keep focusing on the right priorities
The study, known as the Alert Mechanism Report, forms part of the EU’s annual economic semester, which checks on whether the euro area members states are moving in the right direction. The Commission’s warning on declining Maltese exports comes hot on the heels of other international reports indicting loss of competitiveness.
Only two months ago, Malta dropped another grade in the World Economic Forum’s competitiveness index after slipping six places in 2013. According to the latest index Malta is ranked 48 out of 140 economies. In 2012, it placed in the 41st position. Describing Malta’s current economic growth as robust, the Commission’s economists said that no microeconomic imbalances were identified in Malta.
According to the report “a number of indicators are beyond the indicative threshold, namely losses in export market shares, private and public debt”.
Stating that Malta’s current account balance and net international investment position improved considerably in 2014, it noted that the improvement reflected favourable developments of the economy’s financial account, supported by market valuation changes and exchange rate movements.
While finding Malta’s level of private debt “elevated”, Brussels said this was particularly due to corporate sector debt.
However, “the debt-to-GDP ratio is correcting, reflecting strong economic growth as well as subdued credit growth”.
Brussels reported that general government debt was adjusting slowly as the budget balance consolidated, mainly thanks to higher budget revenues, also reflecting a favourable macroeconomic environment. Malta’s economy adjustment capacity was supported by a strong labour market performance, in particular robust gains in employment and a low unemployment rate, including youth unemployment.
On a general level, the Commission said the economy was recovering but member states had to keep focusing on the right priorities. The response by member states required more impetus into investment, decisive structural reforms and responsible fiscal policies.