Malta's GDP growth is projected to glide to 4.1% this year and 3.7% in 2017 and 2018, which still puts it among the fastest growing in the euro area, the European Commission said in its autumn forecast today. 

Growth was 6.2% last year.

"Growth is to continue to be based on strong labour market fundamentals - robust job creation and low unemployment. Fiscal consolidation is set to continue, bringing down the government debt below 60% of GDP," the commission said.  

"Domestic demand is projected to remain the main driver of growth in 2016 and 2017. Private consumption is seen to be the main contributor reflecting rising disposable income, a growing population, and a decreasing saving rate.

"Following the construction of a new power plant, private investment is projected to remain strong in 2016 and 2017 boosted by newly-emerging activities in the transport sector as well as a number of large projects. As the investment cycle
moderates, gross fixed capital formation is seen to contract in 2018 on a high base."

It said that services, particularly transport, are projected to be the main driver of exports over the forecast horizon, despite a projected decrease in demand from the United Kingdom.

"The government's citizenship programme also positively affects services exports," it said.  

Export of goods are forecast to contract this year and go on a gradual recovery thereafter, particularly driven by the chemical and pharmaceutical industry.

With domestic demand slowing down in 2018, net exports are projected to make a significant contribution to GDP growth.  

Unemployment is projected to drop further to 5% this year on the back of sustained strong job creation. Thereafter, unemployment is forecast to increase slightly, in line with moderating GDP and employment growth, but should remain very low by historical standards.

Nevertheless, upward pressure on wages is forecast to remain limited as the influx of foreign labour mitigates labour market shortages.

Growth in unit labour costs is projected to average 1.4% between 2016 and 2018 – well below the long-term average. HICP inflation is projected to reach 1.0% in 2016, mainly driven by services and food prices.