The Central Bank of Malta has revised downwards its economic forecast for Malta this year but expects growth to exceed pre-pandemic levels in 2022, if a vaccine is successfully rolled out.
Figures released on Friday show the Central Bank expects the economy to contract by 7.5 per cent this year, down one per cent from its forecast in August.
The outlook is slightly more optimistic when compared to global credit agency Fitch, which predicted a 7.7 per cent drop in GDP.
In its forecast, the Central Bank blamed a drop in demand for exports, restrictions on travel, and disruptions to the global supply chain. The shutdown of various activities and increased levels of uncertainty impacted domestic consumption and investment, it said.
It said the forecast reflected the re-introduction of measures to contain COVID-19 and “renewed signs of deterioration in business sentiment, which are expected to dampen the global economic recovery in the near term”.
It said the economy is likely to grow by 5.9 per cent next year, revised down from 6.1 per cent in its previous forecast.
However, its outlook has been revised upwards to 4.4 per cent in 2022 and 4.2 per cent in 2023, “conditional on the successful rollout of a vaccine” next year.
Employment growth will "remain positive".
The Central Bank projects government deficit will reach 9.4 per cent of GDP this year, narrowing to 6.4 per cent next year and four per cent by 2023.
Moreover, the government debt-to-GDP ratio is projected to rise from 42.6 per cent in 2019 to 60.5 per cent by 2023.
Worst-case scenario
If health protocols remain restrictive, beyond next year, GDP contraction could reach 9.4 per cent this year, rebounding to 5.5 per cent in 2021, before moderating again to 3.7 per cent and 3.6 per cent in the following two years.
In this scenario, the 2019 level of GDP would be exceeded only in 2023.
Additionally, the government deficit would deteriorate more sharply in 2021, reaching 9.8 per cent, before narrowing to 5.5 per cent by 2023 while the government debt-to-GDP ratio would rise to 68.6 per cent by then.
The Central Bank noted that the labour market had shown “remarkable resilience” despite the sharp contraction this year.
While unemployment rose initially, it declined due to government support measures so employment growth is “set to remain positive” this year and reach 2.5 per cent by 2023, an upward revision from previous projections.
Annual inflation is set to ease to 0.8 per cent this year, down from 1.5 per cent in 2019, reflecting lower domestic and international price pressures. However inflation is predicted to reach to 1.6 per cent by 2023, reflecting a projected pick-up in economic activity.