A “much-expected” eurozone recession may not actually materialise at the end of this year, Central Bank governor Edward Scicluna said on Friday.
In November, the European Commission predicted that the eurozone will slide into recession over the winter, as inflation continues to rise.
Addressing an event by the Institute of Financial Services, Scicluna noted how inflation across eurozone countries, including Malta, had taken a dip in November, marking the first drop in 17 months.
“Some say it might have peaked. Gas and oil prices are on the decline. Trasfigura, a respected authority on gas reserves, tells us that the gas crisis has abated not just for this winter but quite possibly the next.
“The much-expected recession at the end of this year might not materialise after all,” Scicluna said.
Scicluna said that while domestic activity can be expected to gradually slow down during the current and coming quarters, the European Commission’s forecasts that Malta is still expected to have the second highest rate of growth in the euro area.
“In our view, even this forecast is quite cautious given the resilience of the economy, as shown, for example by the unemployment rate, which is still below the lowest rate recorded pre-pandemic”.
He, however, warned that Malta is not out of the woods when it comes to rising prices.
Scicluna cautioned that inflation had been on an upward trajectory in Malta, despite the generous subsidies which kept wholesale and retail fuel and electricity prices at 2019 levels.
The Central Bank governor said an assessment of consumer inflation in Malta, excluding energy, “is even less encouraging”.
“While since the start of the year, food inflation has been only moderately below that in the euro area, non-energy industrial goods and services inflation have exceeded the corresponding euro area averages. In particular, services inflation in Malta averaged 5.8% since January, far above the rate of 3.4% recorded for the euro area,” Scicluna said.
Scicluna said that in part, this reflects the higher cost of imported inputs used to generate services, but it also reflects domestic inflation processes that have been triggered by the strength of demand for services.