Malta’s GDP is expected to grow by 3.9 per cent in 2015 and 2.9 per cent in 2016, according to the October 2015 issue of the EY Eurozone Forecast (EEF). This year’s forecast is up from EY’s June prediction of three per cent, and is higher than the European Commission’s forecast of 3.6 per cent growth and the IMF’s projection of 3.1 per cent.
EY said Malta’s strong labour market, rising tourist numbers and low inflation are all supporting consumer demand.
The forecast for the eurozone as a whole says that the bloc remains in a ‘sweet spot’, benefiting from lower energy prices, a more competitive exchange rate and solid demand in the UK and US. The forecast also predicts that with business confidence improving, investment spending will pick up in 2016, boosting GDP growth from 1.6 per cent this year to 1.8 per cent in 2016.
Ronald Attard, managing partner, EY Malta, said: “The good economic and financial news about the eurozone is certainly welcome. It is of great satisfaction to us that Malta is not just keeping pace but outperforming many eurozone members on various fronts. We at EY Malta having been doing our part to seize the opportunities opening up as a result of these positive developments.”
The EY reports says that unemployment in Malta is half that of the eurozone and programmes to promote youth employment have been successful. It says tourism has solid momentum and is expected to continue along this route. The lower oil import bill has also supported the current account surplus. However, it points out that with almost 25 per cent of Malta’s goods exports now going to emerging markets, the impact of the slowdown in China is weighing down on trade prospects.
The report highlights that in July, Standard & Poor’s upgraded the outlook on Malta’s BBB+ credit rating from ‘stable’ to ‘positive’, citing strong growth and fiscal consolidation.
The forecast says government revenues are expected to continue to grow strongly, helping the fiscal deficit to narrow to about one per cent of GDP by 2019.
The EY Eurozone Forecast says direct investment has been one of the key drivers behind Malta’s economic success in recent years. EY will launch the 2015 edition of the Malta Attractiveness Survey on Wednesday. The findings will highlight whether 100+ foreign investors on the island plan to retain and grow their operations. It will also provide a detailed analysis of the local FDI landscape and ways in which Malta can be more open to business.
Internal and external factors have aligned for a stronger eurozone recovery in 2015-16
The forecast says consumer demand remains a key driver of the eurozone recovery in the second half of 2015. The decrease in oil prices continues to provide a boost to household incomes, while household views of labour market prospects are improving tentatively. The EEF expects a consumer spending growth of 1.7 per cent in 2015, the strongest since 2007. However, with energy prices recovering, the pace of spending is expected to ease to 1.4 per cent in 2016 and 1.3 per cent on average in 2017-19.
The feared systemic risks in the eurozone – widespread fiscal crisis and deflation – are fading, while the recent agreement between the eurozone and Greece suggests renewed appetite to compromise on both sides.
Tom Rogers, senior economic adviser to the EY Eurozone Economic Forecast, said: “Internal and external factors have aligned for a stronger eurozone recovery in 2015-16. The slowdown in emerging markets is a worry, but is countered by strengthening export markets in the US and UK. Meanwhile, consumers are increasingly hopeful about their labour market prospects and, with the worst of austerity over, fiscal policy will drag less on growth.”
Mark Otty, EY area managing partner for Europe, Middle East, India and Africa, said: “After the summer’s uncertainty, the eurozone is settling into slow, but steady, growth. A stable overall recovery may have set in and this will mean, on average and over time, that conditions get better for everyone in the eurozone. However, in the next few years, unemployment will remain a major issue. We expect the jobless rate to fall steadily as the recovery becomes more established, but it will not fall below 10 per cent until 2019. Businesses working in Europe should acclimatise themselves to this ‘new normal’ of slow but steady growth across the eurozone.”
Eurozone exports posted the strongest year-on-year growth rate for four years in the second quarter of 2015, benefiting from both a weaker euro and faster growth in the US and UK. The EEF expects that exports will grow by 4.8 per cent this year, before easing to four per cent in 2016, 3.6 per cent in 2017 and 3.4 per cent on average in 2017-19 as growth in the advanced economies slows down.
In addition, forecasts for export growth are subject to greater risk than they have been for some time in the light of mounting uncertainty about the slowdown in China and associated recent financial market turbulence.
As a result of firmer consumer and export demand, profitability is improving for eurozone firms, with signs that this is feeding through to capital spending. The EEF expects total capital investment to grow by 2.4 per cent in 2016, significantly faster than this year, before picking up further to 2.8 per cent in 2017 and then averaging 2.6 per cent in 2017-19.
With the eurozone economy now in recovery mode, more of the work in closing budget deficits will be done by rising tax revenues, the report claims.
However, given the extent to which the eurozone’s debt burden rose through the crisis years, the EEF expects government spending to remain constrained for some time.
Mr Rogers said: “A slower pace of long-term growth looks to be the ‘new normal’ for the eurozone. But sustained – and more geographically broadened – efforts to reform labour markets and improve the business environment could change this. The recovery in economies that have done most in this respect, in particular Ireland and Spain, demonstrates that a slower pace of recovery is not inevitable.”
Mr Otty said: “I think that businesses, governments and people should be positive about the future of the eurozone. The migrant crisis that has dominated headlines over the last few months is perhaps a salient reminder that however much doom and gloom is forecast for the single currency, Europe remains a beacon of hope for many of those suffering economic and physical hardship in other parts of the world.”
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