Enayet Karim back from Malta: In 2022, real GDP growth is forecast to reach at 6% against 4.9% target, which is higher than projected in spring, given the expected stronger gains in the services sector, although tampered by the negative impacts of Russia’s invasion of Ukraine. Growth in 2022 is expected to be driven by domestic consumption and net exports. Based on Eurocontrol’s air passenger data projections, the export of tourism services is on course to a very rapid rebound in 2022 with full recovery expected by 2023, contributing to growth in both years. In 2023, real GDP is forecast to increase at a slower pace, but still by a robust 3.8%, affected by a general economic slowdown of its main trading partners, but partially compensated by continued growth of tourism and other services exports.
In June 2022, Malta was removed by the Financial Action Task Force (the international standard setting body on anti-money laundering/countering the financing of terrorism) from the list of jurisdictions under increased monitoring. This positive outcome removed the related limited downside risks flagged in previous forecast rounds.
Inflation in 2021 increased only moderately by 0.7% as energy prices were kept unchanged by state interventions and hedging contracts for gas supply. While the authorities have committed to continue limiting energy price growth in 2022, the strong increase in inflation in the first two quarters of 2022 indicates that rising international energy and commodity prices are affecting Malta’s prices indirectly. Inflation in 2022 is set to rise to 5.6%. The increases in food, transport and imported goods prices, and a continued recovery in the tourism and hospitality services are set to drive up price pressures also in 2023, with inflation remaining elevated at 3.3%.
The world continues in the grip of COVID-19 with devastated tourism industries and global economies. In a previous paper, it was noted that a country’s failure to dampen a first wave of infection or the recurrence of a second wave would serve as disincentives for greatly needed tourists in summer 2020 and would further significantly reduce tourism revenues and potentially accelerate job losses and bankruptcies in affected countries.
Countries in the first wave of infection would need to restrain COVID-19 spread swiftly in order to benefit from summer 2020 tourism. Countries that had controlled COVID-19 and who experienced second waves would manifest the same negative effects.
In the case of Malta, up to the beginning of July, the country had the lowest COVID-19 numbers in Europe but this ended abruptly when two mass events took place. In a fortnight, the steep escalation of cases led to a downgrade of the country’s status to a high-risk destination, with a host of European countries enacting quarantine measures.
The Maltese government re-imposed restrictions and COVID-19 numbers slowly started to temporarily decline. As an economy, Malta is highly dependent on the tourism industry, with approximately 17% of GDP reliant on this sector, directly and indirectly.
Malta’s red listing wrought a heavy toll on the industry. The World Health Organisation has mandated clear criteria for the release of restrictions and this sequence of events should serve as a cautionary tale: heed the advice of our public health colleagues.
Malta is projected to have the highest economic growth rate across the EU by the end of the year.
In its winter economic forecasts, the European Commission predicts Malta’s economic growth for 2022 will reach a chart-topping 6% of GDP.
This is two percentage points higher than the average projected growth of 4% for the entire EU.
The EU as a whole reached its pre-pandemic level of GDP in the third quarter of 2021 and all member states are projected to have passed this milestone by the end of 2022.
Growth continues to be shaped by the pandemic, with many EU countries under pressure from a combination of increased strain on healthcare systems and staff shortages due to illness, precautionary quarantines or care duties.
Prime Minister Robert Abela welcomed the news in a tweet, also adding that inflation is expected to be the lowest in the EU.
The EU forecast says Malta is expected to reach pre-pandemic levels of economic activity around mid-2022.
It said that growth was estimated to have been negative in the last quarter of 2021 and to “remain muted” in the first quarter of this year due to “the surge in infections in late 2021, the tightening of restrictions, low tourist numbers, continued disruptions in global value chains and negative effects of price increases in shipping and transport”.
Growth is expected to pick up in the course of this year as domestic demand recovers and is supported by the implementation of the EU-funded post-pandemic Recovery and Resilience Plan.
It however warned that a “limited downside risk” remains related to possible consequences of the FATF’s decision to grey list Malta last year.
The commission said relative to the EU average, inflation in Malta increased only moderately in 2021.
It noted how the government has expressed a commitment to continue to limit energy price growth in 2022.
After increasing to 2.1% in 2022, inflation is expected to be at 1.9% in 2023 it said.
The interim reported also flagged Malta as one of the countries most impacted by labour shortages affected the services sector.
In the EU’s business surveys carried out in January, supply-side bottlenecks continued to aggravate the economy.
Shortages of material and equipment were particularly severe in manufacturing while services were mainly affected by shortage of labour
“The services’ sector was affected by big labour shortages in Malta, Ireland and the Netherlands,” it said.
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