Higher prices, only ‘moderate’ wage growth and a challenging time for exporters await Malta in 2023, the European Commission believes.

But while most European Union member states will splutter as their economies stagnate and unemployment soars, the Commission expects Malta’s economy to grow, employment to remain stable and inflation rates to continue to trail the EU average.

The Commission’s autumn forecast makes for dour reading, with Brussels predicting “broad stagnation and high inflation” across the 27-nation bloc,  with an overall recession this winter.

Proper adjustment to the shock is only expected in 2024.

For consumers, economic pressures, coupled with high interest rates eroding the value of their savings, will mean they have less money to spend.

Malta is among the countries to emerge least bruised from the EU Commission forecast. 

Its GDP is expected to have registered 5.7 per cent growth this year – one of the EU’s highest rates – and while that will slow to 2.8 per cent in 2023, that will still be significantly better than the stagnant 0.3 per cent forecast for the EU as a whole.

It is a similar story when looking at inflation and unemployment rates, with Malta expected to outperform its EU peers on both those metrics, too. Inflation is expected to moderate to 4 per cent next year (from 6.1 per cent this year), compared to the Eurozone-wide 6.1 per cent forecast, while unemployment rates will remain broadly unchanged at just over three per cent. Eurozone countries, o the other hand, are expected to see unemployment rise to 7.2 per cent.

Prime Minister Robert Abela spoke in triumphant terms about the Commission forecast.

“After the IMF forecast that next year Malta's growth will be six times the EU average, now the European Commission is predicting that our economic growth will be nine times the EU average,” he wrote on Twitter.

The EU Commission attributes Malta’s fairly strong 2022 showing to the fact that it saw strong domestic demand and a strong contribution from net exports. The latter could come under threat next year, however, given the expected economic slowdown that Malta’s main trading partners face, coupled with continued pressures on supply chains.

As has become the norm locally, labour shortages will persist and Malta will continue to grow its labour force by attracting foreign workers, the Commission predicts. Continued demand for workers will most likely lead to unemployment hitting historic lows in 2023 and 2024, it added.

While the macroeconomic picture looks broadly positive, local consumers will still have a hard time: inflation for imported goods will remain high, driving prices upwards, while wages will only grow at a “moderate” level.

While Malta’s unemployment and inflation rates are expected to rank better than those in most other EU member states, the same cannot be said of the national deficit, which is expected to be among the EU’s highest.

That metric is due to the government’s decision to subsidise energy prices, ensuring consumers and businesses do not have to contend with the bill shock that has paralysed many other western economies.

How the Commission expects member states' economies to perform. Image: EU Commission forecast

Covering the rising cost of energy bills will cost the government 2.9 per cent of GDP this year, rising to 3.5 per cent in 2023, before declining to 2.7 per cent in 2024.

The deficit will rise next year (to 5.7 per cent), the Commission is forecasting, before moderating to 4.4 per cent in 2024.

Economic growth will help cover part of that shortfall, leading to increased tax revenues and social security contributions.