Malta’s GDP is expected to grow by six per cent this year as it continues to recover from the pandemic shock, but its books will remain in deficit until at least 2024, according to Central Bank of Malta projections.
The Central Bank believes that the country’s GDP will grow by 5.3 per cent in 2023 and 3.8 per cent in 2024. Last year, GDP rose by 9.4 per cent, surpassing marginally that of 2019.
The government balance is expected to remain in deficit, although narrowing to 3.3 per cent of GDP by 2024 as COVID-related support measures are phased out. Government debt is set to reach 60.9 per cent of GDP by that year.
The deficit reflects the extension of COVID-19 related economic support amid renewed containment measures in response to new variants of the virus and an aggressive vaccination campaign. The Bank estimates that the fiscal balance will show a deficit of 9.3 per cent of GDP in 2021, while the general government debt is estimated to have reached 57.7 per cent of GDP.
Impact of Air Malta's restructuring
According to projections included in the 2021 published on Wednesday, risks to its fiscal projections mainly affect the rest of this year when certain outlays could be deficit-increasing. These risks relate to the likelihood of additional COVID-related support, the impact of Air Malta’s restructuring on the likelihood of state aid to the airline as well as support needed to cushion the impact of rising commodity prices following the conflict in Ukraine.
Central Bank governor Edward Scicluna said inflationary pressures are expected to remain elevated in 2022 but should begin to dissipate in 2023, as supply bottlenecks are expected to gradually fade.
Scicluna spoke at length about the inflationary pressures in world economies, including in the euro area. He explained how inflation decreased marginally from 0.8 per cent in 2020 to 0.7 per cent in 2021, rising to 2.6 per cent in December as international price pressures began to transmit locally.
Scicluna said that notwithstanding the increase in inflation in the second half of the year, inflation in Malta remained well below that in the euro area, which ended December at 5 per cent. This was partly due to the cushioning of domestic energy prices.
Inflation based on the Retail Price Index rose from 0.6 per cent in 2020 to 1.5 per cent in 2021.
Growth driven by domestic demand
According to the bank’s annual report, growth in 2021 was driven by domestic demand although net exports also supported the recovery. Employment continued to benefit from the ongoing normalisation of economic activity in the context of a tight labour market and from COVID-related support measures, in particular the wage supplement scheme.
The CBM said that according to the Labour Force Survey, employment expanded at an average annual rate of two per cent during the first three quarters of 2021, following growth of 3.5 per cent during the corresponding period of 2020. The pace of job expansion improved as the year progressed with the number of job holders in the third quarter around five per cent higher than that recorded before the pandemic.
The unemployment rate averaged 3.7 per cent between January and September 2021, down from 4.3 per cent in the same period of 2020 - well below its average since at least 2003 and the average rate in the euro area.