The IMF have published their latest World Economic Outlook. In this review of global economic developments, they note that compared to their July forecast, the global growth projection for 2021 has been revised down marginally to 5.9% and remained unchanged for 2022 at 4.9%.
This modest headline revision, however, masks large downgrades for some countries. The outlook for low-income developing countries has darkened considerably due to worsening pandemic conditions within them. By contrast, countries that have successfully vaccinated their population are seeing their economic prospects being revised upwards.
The only main source of difference is in the extent of policy support. Developed countries have been able to support their private sectors more substantially, limiting the damage to their productive capacity and limiting social unrest.
Malta’s example shines in this respect. Our country is a leader both in terms of the proportion of the population that has been vaccinated, and in terms of the proportion of GDP that Government has invested to safeguard the economy.
In this light, one understands why the IMF are forecasting Malta to have the lowest unemployment rate in the euro area both this year and the next. Moreover, while the euro area unemployment rate is expected to rise slightly from 8% to 8.1% next year because of the withdrawal of support programmes, in Malta an already-record low unemployment rate is forecast to fall even further, from 3.6% to 3.5%.
Malta’s economic growth, once again, is proving to be very job-rich, contrasting with those in most other countries where economic output is recovering at a sharp pace than job creation. Firms abroad are wary to employ more people as they have been damaged by the pandemic. Those in Malta shielded by Government assistance are recruiting faster than the labour supply can provide. This is testament to the labour market reforms that underpin Malta’s low unemployment rate.
The IMF experts project Malta’s economy to grow by 5.7% this year, faster than the euro area’s 5%. Then in 2022 the growth differential for Malta is expected to grow even further, with our economy expanding at 6%, compared to the 4.3% projected for the euro area’s economy.
While the Opposition is trying to argue that Malta is experiencing very high inflation at present, according to the IMF the rate is a mere third of that faced by other euro area economies. At 0.7% it is also less than a third than the average inflation rate observed in Malta between 2003 and 2012, which was 2.5%.
Throughout that period, Malta’s inflation was much higher than in the euro area, 2.5% as against 2.1%. This is starkly different from what is happening now. Previous Conservative administrations used international price developments to hike local prices of necessities such as electricity and fuel. On the other hand, Labour administrations react to international price developments in a way that shields local consumers.
This approach is one of the main factors underpinning the high economic confidence one finds among firms and households in Malta.