Despite the slowing, however, the central bank describes the sentiment as strong and robust. Economic activity in Malta is foreseen “to remain robust over the projection horizon, supported by both demand and supply factors,” the CBM says in its Q4 2019 Economic Projections 2019-2022 (link to archive).

The central bank says the GDP growth will drop as it is gradually normalising from its “historical” highs. Furthermore, the CBM expects the currently weak international environment to limit export growth in 2019.

The central bank revised its GDP growth projection for 2019 marginally down from its forecast in August due to weaker than expected outturn in private consumption expenditure in the first half of the year.

The CBM also revised growth forecasts for the coming years downward, chiefly due to a weaker international environment affecting export growth and a weaker outlook for gross fixed capital formation. The net export contribution is thought to turn to positive in 2020.

In the coming years, domestic demand will act as the major driver of economic growth, with private consumption seen to remain robust due to favourable market conditions. Private consumption growth is set to decelerate from 2018’s 7.3% to 5.0% in 2019, slowing further to 4.1% in 2020, and to a respective 3.8% in 2021 and 2022.

The central bank expects government consumption to lift domestic demand by the government using some of its fiscal space. The central bank projects government consumption to be heavily influenced by the projected growth in intermediate consumption and compensation of employees, as well as the expected decline in inflows from the Individual Investor Programme (IIP), which are netted against consumption expenditure, according to the Q4 Economic Outlook.

Planned expenditure on infrastructure projects is expected to make investment rebound in 2019, however, growth will slow markedly in 2022 as a number of large projects will be winding up, the CBM foresees. The central bank expects residential investment to grow at a progressively slower pace after the strong expansion of the recent years.

The central bank also warns that the robust growth on the demand side should be supported by the supply side of the economy. “The labour supply is expected to increase further, reflecting continued positive but decelerating net migrant flows and an increase in the capital stock contribution,” the CBM says in its outlook.

The full outlook is available for download from the official webpage of the Central Bank of Malta.

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Gross Value Added (GVA) — the net result of output valued at basic prices less intermediate consumption valued at purchasers’ prices — was up by €191.8m in Q2 2019 when compared to the same quarter last year.

The upward trend was boosted by arts, entertainment and recreation, repair of household goods and other services increasing by €40.1m (9.7%); professional, scientific and technical activities, administrative and support service activities increasing by €37.4m (9.4%); and wholesale and retail trade, transportation and storage, accommodation and food service which increasing €32.5m (5.4%).

Considering the effects of income and taxation paid and received by residents to and from the rest of the world, Gross National Income (GNI) — different to GDP measure in terms of net compensation receipts, net property income receivable and net taxes (minus subsidies) receivable on production and imports from abroad — is estimated at €3.001b at market prices for the second quarter of 2019.

Final consumption expenditure increased by 6.5% in nominal terms and 4.8% in volume terms, according to the expenditure approach — a method used for calculating GDP and is derived by adding the consumption of households, government and non-profit institutions serving households, investment and net exports.

Household expenditure was up by 5.4% in nominal terms and 3.8% in volume terms, and government expenditure grew by 9.9% in nominal terms and 7.3% in volume terms; the two segments being the main contributors to the growth, according to NSO figures.

Gross fixed capital formation increased by 3.6% in nominal terms and 0.8% in volume terms, while exports of goods and services increased by 2.3% in nominal terms and decreased by 0.2% in volume terms. Imports of goods and services increased by 0.8% in nominal terms and decreased by 2.3% in volume terms. Recent statistics by another NSO report have shown that Malta’s trade deficit was widening in the first seven months of the year.

The €204m increase in GDP at current prices is estimated to have been distributed into a €69.5m increase in compensation of employees, a €129.9m increase in gross operating surplus and mixed-income and a €4.6m increase in net taxation on production and imports, as compared to the second quarter of the preceding year, according to the income approach — which is used to measure economic activity is the income approach which shows how GDP at market prices is distributed among compensation of employees, operating surplus of enterprises and taxes on production and imports, net of subsidies.

“The coming budget will ensure that this growth is sustained so that it continues to be enjoyed by Maltese and Gozitan families through a higher standard of living and a better quality of life”, said Minister for Finance Edward Scicluna, according to a press statement issued by the Department of Information (DOI) after the NSO figures had been released.

Editorial note: The full publication by NSO is available for download on the official website of the office. The present article has been updated with a quote from the finance minister.

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The central bank believes that growth in private consumption and government expenditure is expected to “remain robust” while investment is expected to recover from the contraction recorded in 2018.

During the projection horizon, GDP growth will be supported by domestic demand, mainly reflecting “robust” growth in private consumption and investment. 

The net export contribution to growth is expected to be negative in 2019 and 2020, reflecting the weak international environment, and a pickup in import growth as a result of strong domestic demand. The contribution of net exports should turn positive in 2021, reflecting faster export growth, according to the press release.  

Furthermore, the pace of job creation is set to moderate while the labour market is expected to remain tight, with the unemployment rate projected at 3.8% by 2021. 

Annual inflation, based on the Harmonised Index of Consumer Prices (HICP), is projected to ease slightly in 2019, before edging up to 1.9% by 2021, reflecting a pick-up in services and non-energy industrial goods inflation (NEIG). 

Moreover, the government balance is expected to remain in surplus over the coming years, such that the debt-to-GDP ratio is projected to decline to below 40% by 2021. 

The external environment poses downside risks to the projections of economic activity and inflation while domestic risks remain largely on the upside in the medium-term.

The risks to public finances are broadly balanced due to a possible slowing down in the implementation of investment projects that could be offset by higher current expenditure.

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Looking at the production approach Gross Value Added (GVA) — the net result of output valued at basic prices less intermediate consumption valued at purchasers’ prices — was up by year-on-year €186.7m, in the first quarter.

The increase in GVA was chiefly generated by an 11.6% (€42.9m) growth in professional, scientific and technical activities. This was followed by a 9% (€35.7m) increase in arts, entertainment and recreation, repair of household goods and other services; a 6.4% (€29.1m) increase in public administration and defence, compulsory social security, education, human health; and a 5% (€24.5m) growth in wholesale are retail trade, transportation and storage, accommodation and food services, according to figures by the NSO.

Nevertheless, the NSO reports about a drop in agriculture and fishing, from €8.564m in Q1 2018 to €8.385m Q1 2019.

Focusing on the expenditure approach — a method based on calculating GDP and is derived by adding the consumption of households, government and non-profit institutions serving households, investment and net exports — domestic demand represented the main factor related to the growth of GDP during the first quarter of 2019, the NSO says.

The total final consumption expenditure increased by 10.7% in nominal terms and 9.2% in volume terms. An increase was recorded in household expenditure — 5.1% in nominal terms and 3.9% in volume terms —, while government expenditure grew by 27.1% in nominal terms and 24.2% in volume terms. This growth was further compounded by an increase in the gross fixed capital formation of 35.1% in nominal terms and 31.8% in volume terms, as the NSO figures show.

On the one hand, exports of goods and services increased by 3.3% in nominal terms and 0.9% in volume terms. On the other hand, imports of goods and services increased by 8.4% in nominal terms and by 6.0% in volume terms.

Focusing on the income approach — a method which shows how GDP at market prices is distributed among compensation of employees, an operating surplus of enterprises and taxes on production and imports net of subsidies — GDP at current prices went up by €213.8m, and is estimated to have been distributed into a €72m increase in compensation of employees; a €125.1m increase in gross operating surplus of enterprises and a €16.7m increase in net taxation on production and imports, compared to the first quarter of 2018, according to the NSO figures.

Gross National Income (GNI) at market prices for the first quarter of 2019 is estimated at €2.802b, considering the effects of income and taxation paid and received by residents to and from the rest of the world.

The GNI differs from the GDP measure in terms of net compensation receipts, net property income receivable and net taxes — minus subsidies — receivable on production and imports from abroad.

The full report including charts and visual representation of data is available for download at the website of NSO.

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“Malta’s economic growth for 2018 exceeded expectations since actual real GDP growth was higher than projected by the Ministry for Finance, the European Commission, the International Monetary Fund and various Credit Rating Agencies,” finance minister Mr Scicluna said during a press conference given at the Finance Ministry in Valletta.

“I am pleased to note that our country has been consistently recording historically higher economic growth rates in the last six years as this will ensure that the income of our country reaches the average income of the EU. This would ensure that Maltese and Gozitan families would indeed enjoy a higher standard of living,” the finance minister said.

Malta’s GDP was up by 6.6% in volume terms in 2018, according to figures published by the National Statistics Office (NSO). “Provisional estimates indicate that the Gross Domestic Product (GDP) for 2018 amounted to €12,320m, an increase of €1,006m or 8.9% when compared to 2017,” the NSO publication says.

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“Provisional estimates indicate that the Gross Domestic Product (GDP) for 2018 amounted to €12,320m, an increase of €1,006m or 8.9% when compared to 2017,” the NSO publication says.

Considering the so-called “production approach” — summing the gross value added of all industries, which involves first determining its output and then subtracting the goods and services that were used up in the process of generating that output, according to the NSO — gross value added (GVA) of all industries was up by €832.4m in 2018, a rise of 8.3% as compared to the preceding year.

In light of the so-called “expenditure approach” — another method for calculating GDP and is derived by adding consumption of households, government and non-profit institutions serving households, investment, and net exports, the NSO says — GDP growth was mainly attributable to domestic demand. “Total final consumption expenditure increased by 10.2% in nominal terms and 8.5% in volume terms,” the NSO says.

Observing the so-called “income approach” — measuring economic activity, which shows how GDP at market prices is distributed into compensation of employees, operating surplus of enterprises and taxes on production and imports net of subsidies, the NSO says — GDP at current prices went up by slightly more than €1bn, as compared to 2017.

The full report including charts and visual representation of data is available for download at the website of NSO.

Characterising the Maltese economy as one that “maintained a strong growth trajectory” last year, the European Commission earlier put the country’s estimated 2018 GDP growth at 6.2% in its Winter 2019 Economic Forecast. The EC also praised the country for a “particularly brisk expansion” in Q3, and tagged Malta as “one of the most dynamic economies in the EU” for the period.

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The economic forecast describes picking up domestic demand replacing net exports, hence becoming the primary driver of growth as of Q2 2018. The EC talks about a “buoyant private consumption”, which they believe reflects strong employment growth, increasing disposable income and a massive accumulation of savings in the past years.

The forecast also mentions that the country’s export growth slowed due to a weaker external environment, as well as a decrease in goods export, while imports started recovering due to strong domestic demand.

“I am impressed by the European Commission’s forecast which, has once again, revised its forecast for our economy against a weaker external environment upwards,” says Minister for Finance Edward Scicluna, according to a press release issued by the Department of Information of the Maltese government on Thursday. “The Commission has downgraded the Eurozone’s economic forecast amid Brexit and trade tensions,” the minister adds.

Although the commission forecasts further GDP growth of 5.2% and 4.6% in 2019 and 2020, respectively, the pace is thought to slow down due to moderating global demand. The speed is also seen to stay reliant on the domestic market, underpinned by high private and public consumption.

At the same time, the EC envisages large-scale infrastructure projects in the health, tourism and real estate sectors fuelling investment growth, while the current account surplus might likely remain high due to “significant trade surplus of the internationally-oriented services sector,” the report says.

The EC notes that consumer price inflation (CPI) started growing in Q2 2018, reaching 1.7% by year-end, and with materialising wage pressures and expected wage growth, the figure could gradually creep up to 1.9% in 2020.

The full report is available for download at the official website of the European Commission.

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