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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