Fast vaccine rollout in Malta and UK, easing of EU restrictions to put tourism on recovery path

The faster-than expected vaccination rollout, the high rate of vaccination in the UK, and a gradual easing of restrictions in the EU, should put the tourism sector back on the path to recovery in the second half of 2021 and re-invigorate domestic demand, according to the EU’s Spring Economic Forecast.

The report notes that the Covid-19 pandemic has “decimated” tourism proceeds and made a deep dent in consumption.

Malta’s GDP fell significantly in 2020 with services exports and household consumption contracting sharply under the pressure of the pandemic and related safety measures. On the contrary, financial services and gaming sector exports continued to perform robustly.

Although the pandemic has clearly depressed economic activity in Malta, the government’s sizeable stimulus package has managed to partially offset some of the impact. Wage supplement schemes and other business support measures appear to have cushioned the drop in consumption.

But Malta’s economny should see a robust recovery in 2021 and 2022, provided that the tourism sector opens up safely.

“The recovery is expected to be driven by a rebound in tourism-related services exports, household consumption and investment. Given the supportive fiscal policy stance, the general government deficit is set to widen further in 2021 before improving in 2022 on the back of an accelerating recovery and a winding-down of fiscal support measures.”

Consumption and investment are expected to pick up as the recovery takes hold, helped by high levels of accumulated savings.

In 2021, real GDP growth is expected to reach 4.6%, mainly driven by domestic consumption and net exports, as inbound tourism and global trade recover.

Robust government expenditure is likely to continue supporting the economy, including via public investment. With both exports and imports recovering, the current account deficit is still expected to widen this year before starting to decrease in 2022.

According to the forecast, employment is expected to continue growing at a slow pace, and inflation is expected to rise to 1.2% this year.  In line with a stronger economic recovery in 2022, inflation is set to increase further to 1.5%.

The 2020 deficit, which stood at 10% of GDP and was driven up mainly by pandemic-related expenditure, is expected to increase further to 11.8% but is then expected to decline to around 5.5% of GDP in 2022.