Malta's economy is expected to grow fastest among EU countries this year and next year, the European Commission said on Wednesday.

The economy is projected to grow by 5.3 per cent compared to a 1.2 per cent average in the euro area. Hungary and Poland come immediately after Malta with a growth forecast of 4.4%. 

Malta's growth next year is projected to be 4.8%, a full percentage point ahead of the next placed countries. 

The eurozone forecast for 2020 has been lowered slightly to 1.4 per cent. The GDP forecast for the EU remains unchanged at 1.4 per cent in 2019 and 1.6per cent in 2020.

"All EU economies are still set to grow this year and next, even if the robust growth in Central and Eastern Europe contrasts with the slowdown in Germany and Italy," said EU vice president Valdis Dombrovskis.

According to Brussels, those two countries will have the lowest growth levels in the eurozone in 2019: 0.1 per cent for Italy, 0.5 per cent for Germany.

The commission, however, expects a significant acceleration for Germany in 2020, when growth would leap to 1.4 per cent. 

Malta country report

In the country report on Malta, the European Commission observes that Malta’s economy grew by 6.7 per cent in 2018, making it the fifth year in a row in which real GDP has grown by over 5 per cent. The structural shift towards a fast growing, internationally-oriented services sector was the main factor behind Malta’s recent economic success.

Domestic demand was the main growth driver in 2018, replacing net exports. In particular, strong employment growth boosted household disposable income, resulting in record-high private consumption.

In the first quarter of 2019, domestic demand was underpinned by public consumption and investment, while private consumption growth eased slightly. At the same time, net exports declined as a result of strong import growth.

Consumer confidence remained above its historical average, but overall sentiment began to deteriorate in March, particularly in the services sector.

While growth momentum is expected to remain solid, GDP growth is forecast to moderate in 2019 and 2020 to 5.3 per cent and 4.8 per cent, respectively as a result of private consumption growth gradually moderating, mirroring the pace of job creation.

Public expenditure is expected to increase faster than private consumption, as the government makes use of the fiscal space it has accumulated over recent years.

Investment is expected to remain robust over the forecast horizon, supported by planned infrastructure and health projects. Looking at the external sector, import growth is set to pick up in parallel with investment growth, narrowing the large current account surplus.

After reaching 1.7 per cent in 2018, inflation was subdued in the first months of 2019 before accelerating in April, driven by rising food prices.

Prices are expected to further increase during the peak tourism season and then
slightly decelerate, pushing headline inflation to 1.8 per cent in 2019 and 1.9 per cent in 2020.