Between April and June this year economic activity was 13.4% higher than in the same months a year earlier. This was the highest growth rate ever observed in GDP since quarterly statistics started to be compiled. The previous highest growth rate had been recorded in 2017 Q1, 11.5%, or nearly two percentage points less. During this year’s second quarter the economy grew by nearly €450 million compared to the same period in 2020.
Some may counter that this was to be expected, as 2020 Q2 was the quarter when the pandemic shock was at its worst. However, if one considers the first six months of the year the growth rate still amounts to 5.6%, which is much higher than the forecasts of both the Government and the Central Bank of Malta.
The economic results achieved so far are close to the forecasts of the European Commission and the International Monetary Fund, though these two institutions were expecting this rate of growth to occur later in the year and not already by the second quarter.
Restrictions on economic activity
In fact, during the first six months of 2021 there were several restrictions on economic activity, including closures for some months of restaurants and shops. Yet, Malta’s GDP was only 1.8% below the 2019 level. If you exclude sectors that had to stop operating to reduce the spread of the pandemic, in the rest of the economy activity in 2021 was 4.6% more than it was in 2019. Among the sectors currently generating more added value than in 2019, one finds manufacturing, construction, information and communication, financial services, health and remote gaming.
As expected, the primary driver of economic growth was domestic demand. This reflected the fact that between April and June 2021 the country registered the highest employment income ever observed in history. In fact, workers’incomes reached a record figure of €1.6 billion. This was €125 million, or 8.4%, more than last year. This improvement in income has led to private consumption of Maltese and Gozitan households increasing by more than 15% over the past year. A third of this increase reflected higher turnover for hotels and restaurants.
Another very important factor behind the record growth rate of our country’s economy was investment. This reached a record figure of more than €841 million. This is almost a quarter more than the same months of 2021, and 20% more than in 2019, which had previously held the record for the highest investment. Such a substantial increase in investment is the best confirmation that businesses have great confidence in the direction of our country. In contrast in the four years after the 2008 recession, investment had increased in just one year. This time backed by the government’s support for businesses, businesses immediately returned to expansion plans.
Growth expected to be sustained
The results achieved in the second quarter of this year, especially the records obtained in terms of workers’ income and the amount of investment, are confirmation that not only has government policy safeguarded the country’s productive capacity, but even that the latter has continued to grow. The fact that our country has almost reached the GDP level of 2019, even though tourism is still much lower than before the pandemic, is an indicator of how successfully the Government has managed to diversify our economy.
With the success of the vaccination programme, the coming impact of vouchers in the third quarter and the gradual recovery of tourism, it is expected that the growth rate will continue to be sustained. In addition, several major projects financed by European funds will begin in the coming months which will drive the green and digital transformation. Moreover, in the forthcoming budget the Government is expected to undertake additional measures to further generate economic expansion.