Savings and stability fuelling growth

Upward revision in Central Bank economic growth forecasts – household savings in Malta are twice the European average

The Central Bank of Malta has revised upwards its economic growth forecasts, with the Maltese economy now expected to grow by 4.4%. Just a few months ago, our economy had been expected to rise by just 3.8%. Forecasts for growth for next year and the next were kept at the same level as before, but Central Bank experts have revised down their forecasts for inflation and have also improved the predicted development of public finances.

The upward revision of Malta’s economic performance is contrary to what is forecast for the rest of the European Union, where growth is constantly being revised downwards. However, even though other economies are shrinking, Maltese companies are still predicted to increase exports at a sharper rate. This may be an effect of their competitiveness, as the price of energy and fuel in Malta has not changed, while interest rates have also remained stable, contrary to what has happened in the rest of Europe.

High level of household savings

Meanwhile, the Central Bank experts believe that private consumption will continue to be sustained. A key factor behind this is the very high level of household savings. The savings rate in our economy is estimated to be twice that in the rest of the European Union. According to the Central Bank a strong element behind these savings is the stability of energy prices. Indeed, the Central Bank’s analysis shows that the most likely to increase their savings in this period were the lowest income households as well as those in the middle class. Thanks to these savings these families were able to continue consuming more despite there being an increase in prices.

Positive forecasts for public finances and debt

The positive economic performance led the Central Bank to also review forecasts of the public finance situation. While the Government is forecasting a 5% deficit for 2023, according to the Central Bank this will barely exceed 4%. By 2026 the deficit is expected to be close to 3%. When it comes to public debt, this is expected to remain below 55% until the final year of the forecasting exercise. This will happen despite a huge amount of public investment, as well as sustained improvements in social benefits.

On the latter the Central Bank notes that in recent years, due to the improving employment situation, the relative cost of benefits to unemployed or low-income people has decreased. In contrast, the allocation for pensions has increased, due to a steady improvement in pension rates. This took place in addition to a doubling of the allocation for free services to the elderly, such as free transport and free medicines.

The fact that, once again, the Central Bank had to revise upwards its economic forecasts and downwards its predictions for the deficit and public debt burden is proof of the effectiveness of the strategic economic decisions taken by the Government. Without any austerity measures, the country is managing to improve its financial situation through to a policy of stability and investment in people and businesses.

Photo: Dom J

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