Economic forecast and housing affordability

Last Updated on Thursday, 23 November, 2023 at 10:18 am by Andre Camilleri

A few days ago the Autumn 2023 Economic Forecast from the European Commission was issued. It outlined that Malta GDP growth is expected to moderate to 4% in 2023 from 6.9% in 2022. Private consumption is to decelerate slightly due to higher inflation and investment to decrease. Economic growth is forecast to remain robust at 4% in 2024 and 4.2% in 2025.

The report outlines that while energy prices in Malta are set to remain unchanged until 2025 due to government measures, inflation is still projected to reach 5.7% in 2023 and then to moderate to 3.3% in 2024 and 3.1% in 2025. In 2023 inflation in Malta was mainly fuelled by increasing prices for imported goods, food and services. In 2024 & 2025, inflation is projected to slow as outlined above, due to moderating inflationary pressures of food and industrial goods. The tight labour market and increasing wage growth will likely keep inflation in services sector more persistent.

The general government deficit is expected to decrease gradually from 5.7% of GDP in 2022, and to stand at 4.1% in 2025. Public debt is forecast to reach 57% of GDP in 2025. Despite higher inflation, private consumption already achieved 5.2% growth in the first half of 2023 and no further slowdown is expected as retail sales growth remain positive. The tourism sector continues to rebound strongly, already exceeding the pre-pandemic levels, with further growth prospects in 2024 and 2025. Net exports are set to be the main contributor to GDP growth in 2023, with consumption being the main driver in 2024 and 2025.

All this means that with regards Malta’s economic growth model nothing much is expected to change. Malta is expected to maintain a high pace of employment and population growth, a key factor driving the outlook for consumption in 2024 & 2025. Employment increased by 6.2% in 2022 and continued to grow very strongly in the first half of 2023. This increase is fuelled by strong labour demand which increased across all sectors of the economy, both public and private. Thus, the report forecasts that the labour force in Malta is set to continue growing at a robust pace in 2024 and 2025 in line with population growth as Malta will continue attracting foreign workers.

One of the effects of Malta’s economic growth model could be reviewed by a recent report issued by the Foundation for Affordable Housing, entitled “Housing Affordability in a Post-Boom Malta”. In this report it is outlined, that the average price of housing units in Malta between 2021 and 2023 increased by 15.4% to an average level of € 225,000. This means that the sustained increase in house prices continues to push upwards the income threshold below which individuals become ineligible for a loan, whereby by early 2023, an individual (or group of individuals) with an annual income less than €25,000 became ineligible for a loan on the average priced-housing unit of €225,000.  The report outlines that just 2 years earlier, in 2021, the minimum income required to acquire a property within the average price at the time was at about €20,000.

Obviously, all is connected. It would interesting if a wider study where to be done on the social implications of our economic growth model. One could likely find that besides the impact on housing affordability, the chain reaction is that this is also leading to the lower birth rates we are experiencing, as it is taking younger generations more time and effort to afford their first house and settle down, with many having their first child in their mid-30s.

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