In their latest set of projections for the Maltese economy, Central Bank experts argue that due to better-than-expected positive developments in recent months, they decided to revise their forecasts so that economic growth is now expected to reach 6% this year, rise further to 6.5% next year, and exceeds 5% even in 2023.
This upward revision is the third consecutive such revision, after the earlier ones published by the IMF and the European Commission earlier this year.
The Central Bank’s upward revision is however the largest of the three, with growth revised upwards by almost one percentage point this year, by three-quarters of a percentage point next year and by half a percentage in 2023. These revisions are due to better-than-predicted results mainly in relation to private investment and consumption, while tourism is recovering at a better rate than forecast.
This is the 3rd upward revision in recent months, after revisions by the IMF and the European Commission.
The Central Bank’s economic forecast for 2021 indicates that investment will grow by more than 11%, followed by growth of 5% next year and 6% in 2023. This is partly due to public expenditure, but largely reflects higher private investment. An important element behind the recovery is the anticipation that Maltese and Gozitan families will increase their consumption very strongly, as they will run down slowly the extraordinary amount of savings they made in recent months. In addition, exporting companies are starting to see an improvement in external demand and are therefore feeling the need to invest more.
Unemployment to reach record low
A key factor behind the driver of domestic demand is the excellent situation of the labour market. Malta was in fact one of the few countries in Europe where employment increased instead of decreasing in 2020. This is expected to continue in the coming years. So much so that the unemployment rate next year is expected to fall to 3.3%. The Central Bank report notes that this would be the lowest unemployment rate in the history of our country. At the same time as unemployment will continue to fall, wages are consistently expected to rise at significant rates.
Noting the strong support provided by the Government, the Central Bank’s forecasts indicate that the deficit will start to decline, with it falling to a third of the rate in 2020. Moreover, the national debt burden is expected to remain closeto the rate of 61% of national wealth, one of the lowest rates in the euro area, and well below Malta’s 2013 level.
Finally, the Central Bank’s report indicates that this will happen despite that through the 2022 Budget social expenditure will reach a record high. The estimates presented by the Bank suggest the increases in social benefits announced in the Budget for 2022 were twice as strong as those announced in the preceding budget.