The official real gross domestic product (GDP) growth forecasts for 2018 to 2021, respectively amounting to 6.1%, 5.3%, 4.8% and 4.6%, was within Malta’s endorsable range, the Malta Fiscal Advisory Council said.
In its assessment of the macroeconomic forecasts for the Maltese economy prepared by the Finance Ministry as part of the Update of Stability Programme 2018 – 2021, the council said these growth rates were judged to be compatible with the assumptions employed and the estimated economic relationships.
The projections also appeared to be cautious, in that they represented a gradual moderation compared to the growth recorded during the previous five years.
It noted that the latest available real GDP growth forecasts produced by other institutions, namely the Central Bank of Malta, the European Commission and the International Monetary Fund, portrayed a similar scenario of gradual moderation in economic growth and range within one percentage point for practically all the available years.
The fact that different independent institutions shared a similar overall outlook for the Maltese economy, strengthened confidence in such forecasts.
As for the sectoral drivers of the projected expansion trajectory, the council noted that both domestic demand and net exports were expected to contribute positively to economic growth throughout the four-year horizon.
Domestic demand was expected to be the main source of growth in each of the forecast years, but its contribution was expected to vary in intensity across the years.
The volatility in investment, whose forecast growth rates ranged between 2.6 and 10%, was a recurring element of uncertainty, which could be both upside or downside.
On the other hand, private consumption, which was the main component of domestic demand, was expected to grow by 4.4% in 2018, in line with the actual turnout in 2017. Subsequently it was set to ease slightly in each of the outer forecast years, to 3.3% by 2021.
The council understood that such forecasts were driven by the expectation that labour market developments would remain benign, characterised by rising employment levels, rising real wages and low unemployment rates.
With respect to the projected government consumption, the council noted that these were based on the updated government expenditure forecasts, and the assumptions about the expected future yield from the Individual Investor Programme.
In relation to exports, the Council noted the generally stable forecast for export growth, around 3% annually. This appeared consistent with the continued pick-up in Malta’s main trading partners and the positive outlook for certain sectors.
In the case of imports, their growth was expected to range between 1.6 and 2.9%, with the yearly fluctuations compatible with the developments in domestic demand and composition.
Overall, the fiscal council viewed the balance of risks to GDP growth for 2018 to 2021 as broadly neutral, with the possible downside risks associated to the external sector likely to be compensated for by possible upside risks related to domestic demand.
The full report, “Assessment of the Macroeconomic Forecasts – Update of Stability Programme 2018 – 2021”, can be read here.