The European Commission said on Thursday that it expects Malta's economic growth to continue to moderate, even though it will still be the best performer in the bloc this year.

In its winter forecast, the commission said that following a strong increase of 7.0% in 2018, real GDP growth is estimated to have eased to 4.5% in 2019,
mostly due to a moderation in private consumption and a weaker external environment.

Domestic demand remained the main growth driver in 2019, with private consumption supported by a strong labour market. Public consumption and investment remained solid.

"Nevertheless, confidence indicators have been easing since autumn, in particular in the services and construction sectors," it said.

While Malta’s economic performance is expected to remain buoyant, GDP growth is forecast to moderate further to 4.0% this year and 3.7% in 2021.

The commission said private consumption is also set to gradually moderate, reflecting a slowdown in job creation. The pace of investment growth is set to remain strong as existing projects are expected to mature. Public expenditure growth is projected to ease.

Expected gradual improvements in the external environment will likely support some rebound in exports, while the steady increase in imports implies a broadly neutral contribution to growth from net exports," the commission said. 

Despite a significant rise in food prices in the first half of 2019, HICP inflation declined to 1.5% in 2019, it added. Headline inflation is set to remain at this level in both 2020 and 2021.

In a reaction to the forecast, the Maltese government said Malta's economy is still expected to grow at the fastest rate in the EU. A growth rate of 4% this year will be three times the EU projected average. 

The government noted that inflation in Malta declined to 1.5% in 2019 and is set to remain at this level in both 2020 and 2021.

This meant that inflation will be equal to that of the EU this year, and lower next year.

The European Union's forecast nullified Opposition claims that the country was going through a 'Made in Malta' recession, the government said. 

It said it remained committed to maintaining economic growth through record spending on capital projects which would in turn sustain private sector projects. It also wanted to ensure there was equitable distribution of wealth.