Malta’s COVID-19 economic recovery over the next three years is expected to be stronger than previously forecast, the central bank said on Friday.
In a new report, the Central Bank of Malta said Malta’s gross domestic product will grow by 6% in 2021, by 6.5% in 2022, 5.3% in 2023 and 3.8% in 2024.
Compared to the Bank's earlier projections, GDP growth is being revised upwards by 0.9 percentage points in 2021, 0.7 percentage points in 2022, and 0.5 percentage points in 2023.
The upward revision brings the bank's GDP growth forecasts closer to those of the IMF (5.7% for 2021) and rating agencies such as Fitch (5.9%).
Its more bullish projections for 2021 and 2022 are primarily driven, the bank said, by stronger growth in investment and government consumption, and to a lesser extent, by a stronger projected recovery in private consumption.
Moreover, tourism is expected to be more buoyant in 2021 than previously anticipated.
However, the bank added that the upward revision in these areas is offset by a strong downward revision to goods exports.
In 2023, the upward revision is driven primarily by higher private consumption. The bank forecasts stronger growth in labour income envisaged for 2021 and 2022.
Imports and exports
Growth is expected to be driven by domestic demand this year, though the recovery in all demand components will be partially absorbed by an increase in imports.
The island’s exports are expected to exert a considerably smaller negative impact on GDP growth compared to 2020, as foreign demand for local products is recovering.
In the following years, domestic demand is envisaged to continue leading the expansion in economic activity. This reflects a strong contribution from private consumption.
At the same time, the contribution of net exports is projected to turn positive, the bank said this was largely due to tourism returning to normal.
Employment
The labour market is expected to remain strong in 2021, however the bank warns that labour shortages are assumed to become more relevant this year, in part due to the impact of travel restrictions on migration.
Employment growth is on track to decelerate to 2.2% in 2021.
It is then set to grow more rapidly in 2022 in view of the envisaged pick-up in economic activity, and slow down in the following two years.
The unemployment rate is set to reach 3.4% by 2022, which would mark a historical low for Malta.
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In view of what the bank described as a “tight labour market”, wage growth is envisaged to remain heightened over the projection horizon.
Deficit and debt
The government’s fiscal policy is projected to remain highly expansionary in 2021, partly driven by the extension of COVID-19 related support.
In 2021, the general government deficit is expected to narrow slightly to 9.6% of GDP.
The deficit is projected to narrow substantially over the remainder of the forecast horizon as COVID-19 measures unwind and macroeconomic conditions improve further.
By 2023, it is forecast to narrow to 3.1% of GDP.
On its part the government debt-to-GDP ratio is projected to rise further, peaking at 61.2% by 2023 before declining slightly to 61.1% in 2024.