The European Commission has issued its Summer 2021 Economic forecasts. The publication titled “Reopening fuels recovery” is a very welcome piece of good news for the EU. Commissioner Paolo Gentiloni stated that “The EU economy is set to see its fastest growth in decades this year, fuelled by strong demand both at home and globally and a swifter-than-expected reopening of services sectors since the spring.”
In fact, the Commission’s economists revised their forecast for the Euro area’s 2021 GDP growth to 4.8%, from their previous estimate of 4.3%. This upward revision of half a percentage point led to the Euro’s value to rise, and contributed to raise the performance of the German stock exchange. This reflected Paolo Gentiloni’s statement that this was “the highest upward revision we have made in more than 10 years and is in line with firms’ confidence reaching a record high in recent months”.
Well, if the upward revision for the Euro area was impressive, that for the Maltese economy was astounding. In the newly published Economic Forecasts, Commission experts raised their projection for the growth of our country’s GDP in 2021 from 4.6% to 5.6%.
This upward revision, of one percentage point, is double that made for the Euro area. It is even more impressive when one notes that there were several countries where the Commission’s forecasts did not change much. For instance, the forecast for Portugal remained 3.9%. That for Germany rose from 3.4% to 3.6%, while the forecast for France improved from 5.7% to 6.0%.
Commission experts noted that already in the first quarter of 2021 Malta achieved much better-than-forecast economic results. This was one of the reasons why they felt they had to raise the forecast for our country’s GDP. The Commission report noted how optimism and confidence among businesses and families has improved greatly. A key factor was “the high pace of vaccinations in Malta and the improvement in the public health situation”. All this led the Commission to conclude that “economic activity is on a path to a solid recovery”.
The Commission report noted how optimism and confidence among businesses and families has improved greatly.
Another factor mentioned by the Commission’s economists is the sharp improvement in private consumption, caused by a “strong uptake of Government financed consumption vouchers”.
For the Euro area, the economic rebound is relatively limited, as next year growth will slow down to 4.5% from the 4.8% projected for this year. Not so for Malta. The pace of economic improvement is expected to accelerate further in 2022, when the Maltese economy is expected to grow by 5.8% following growth of 5.6% this year. Part of this will reflect the continued recovery of tourism, but the Commission also expects strong investment from both the private and public sectors. As regards public investment, Commission experts mention the positive impact that will follow the implementation of Malta’s Recovery Plan. It appears that the plan, described as an omelette (froġa) by the Leader of the Opposition, has earned praise by Commission Experts.
While the Opposition is still trying to scare families and businesses with the economic effect of the FATF decision on our country, the European Commission has explicitly noted that this is a “limited downside risk”. This is the same stance adopted by the rating agencies, DBRS and Fitch, which both indicated that the FATF decision can only have an impact if Government does not take appropriate action.
Instead of downgrading Malta’s economic prospects, the European Commission has revised them upwards by one percentage point. Back in early 2013, Commission experts had titled their economic forecasts for Malta “Subdued investment holds back growth”. At that time, the forecast for economic growth for Malta was less than the revision the Commission have made to this year’s growth.