The Central Bank of Malta’s annual report confirmed that last year, the Maltese economy recovered at a much stronger rate than that observed for the rest of the euro area. While our country experienced a growth rate of 9.4%, or more than a percentage point higher than the contraction brought about by the pandemic in 2020, in the euro area growth was only 5.3%, or more than a percentage point lower than the decline observed a year earlier.
Thus, whereas by the end of last year the Maltese economy was larger than it had been before the pandemic, the euro area’s GDP is still below pre-COVID levels. The stronger economic recovery in our country had not been predicted, so much so that in previous reports the Central Bank had been expecting that the Maltese economy would recover by June this year.
The Central Bank’s analysis indicates that while a few sectors – including tourism – remain below their 2019 activity level, there are many others where activity is much higher than pre-pandemic levels. So much so that the overall level of investment is 10% greater than it was before the pandemic started.
The overall level of investment is 10% greater than it was before the pandemic started.
According to the Central Bank, more sustained government consumption made up for the fact that external demand has not yet fully recovered. At the same time while private consumption is still lower than it was in 2019, a fact that the Nationalist Party is trying to spin into its usual tales of doom and gloom, much of the decline is because the Maltese are travelling less, to the extent that in 2021, they spent abroad half of what they had previously spent.
The Central Bank’s report notes that the strength of the economic recovery has led to job creation, so much so that the employment rate in our country is now well above the European average. The positive trend in the labour market meant that instead of the projected increase in unemployment that some had forecast when the pandemic struck, unemployment in 2021 instead fell to a historic minimum.
The economic recovery also meant that the Government deficit was much lower than forecast. Even the national debt burden, which was expected to exceed 60% of GDP, has in fact remained well below this level. The improvement in Government finances was not due to a reduction in spending, but rather because government revenue expanded much more sharply than predicted.
As regards prices, the Central Bank of Malta pointed out that both property prices and those of goods and services did not rise significantly on average in 2021. But towards the second half of the year the rate of rising prices began to accelerate.
In fact, Central Bank experts are anticipating that the rate of inflation will continue to rise sharply this year. Despite this, our country’s economy is expected to continue to grow at a rate above the European average. This because domestic demand is forecast to pick up, even as employment is expected to continue to increase at a higher rate than last year’s. The strength of the economic recovery will mean that the government’s financial situation will continue to improve, and the Central Bank’s report maintains that even if one hypothesizes a series of shocks, the national debt will remain sustainable.
As regards the impact of the war in Ukraine, the Bank stated that while this is expected to lead to pressure in international prices, as well as lower growth in external demand, the prospects for the Maltese economy still remain more positive than those in other European countries, as these are more exposed to the effects of this crisis.