Malta's GDP growth this year will be slower than in 2007 but its economy will grow at a faster pace than the euro area average, according to the European Commission's assessment of the future performance of the Maltese economy.

According to the EU executive's ring economic forecasts published yesterday in Brussels, Malta's economy is expected to slow down to 2.6 per cent this year and 2.5 per cent in 2009 after reaching a GDP growth of 3.8 per cent 1n 2007. Malta's forecasts are in line with the current trends in the EU which this year is expected to register moderate economic results.

The Commission has revised its forecast for Malta downward. In its autumn economic forecasts issued last year it had projected a GDP increase of 2.8 per cent in 2008 and 2.9 per cent in 2009.

"Economic activity is projected to be mainly domestically driven in both years," the Commission said on Malta.

"For 2008, the boost to disposable income brought about by further tax cuts and higher transfer payments, is expected to be dampened by higher food and oil prices and a moderation in employment growth. Against this background, private consumption growth is anticipated to decelerate in 2008 and recover slightly in 2009."

One positive aspect related to Malta's economy this year is expected to be an injection in investment.

"Investment is anticipated to post strong growth in 2008 and 2009, by around 3.5 per cent and three per cent respectively, on the back of higher private capital spending linked, amongst others, to a major ICT project," it said.

Tourism is also expected to continue to grow.

On the other hand, the situation on inflation is worrying.

"In 2007, HICP inflation fell sharply to 0.7 per cent, mainly on account of declines in tourist accommodation prices as well as the authorities' decision to keep utility prices unchanged. Higher food and oil prices are expected to push up inflation to 3.4 per cent in 2008. Thereafter, the rate of price increases will ease to 2.2 per cent, brought about by the unwinding of the previous year's build-up in food and energy prices."

In its forecasts, the Commission is expecting the continuation of a strong employment market, with further declines in the number of people registering for work and an increase in both imports and exports.

On a general level, the Commission's report states that growth in the EU is expected to fall to two per cent in 2008 and 1.8 per cent in 2009 from 2.8 per cent in 2007. In the euro area the growth is expected to be even lower at 1.7 per cent and 1.5 per cent from 2.6 per cent in 2007.

The Commission said that the moderation in growth results from the persisting turmoil in the financial markets, the marked slowdown in the United States and soaring commodity prices, all of which are taking their toll on global activity.

Economic and Monetary Affairs Commissioner Joaquin Almunia said that the EU economy is holding up relatively well thanks to sound fundamentals and is expected to create three million new jobs in 2008-2009. However, consumer price inflation is expected to surge temporarily to 3.6 per cent this year due to soaring energy and food prices.

"Economic growth is moderating in the EU and euro area and the current, imported inflationary pressures are a matter of concern. While our economies have proved resilient to the external shocks so far, and we expect continued, albeit slower, job creation, we need to stick to sound macro-economic policies and carefully avoid starting an inflation spiral that would particularly affect low income families," Mr Almunia said.

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