On 29 April 2016, the Malta Fiscal Advisory Council (MFAC) presented to the Minister for Finance its assessment of the official macroeconomic forecasts contained in the Update of Stability Programme 2016 – 2019 which was submitted to the European Commission on 29 April 2016, the MFAC said in a statement.
The Update of Stability Programme is used by the European Commission to assess whether a Member State is on track to meet its Medium-Term Budgetary Objective. In terms of EU regulations and the Fiscal Responsibility Act, all macroeconomic projections produced by the Ministry for Finance must be assessed by the MFAC to determine whether they are sound and plausible.
On the basis of the latest available information, the MFAC is of the opinion that the series of macroeconomic forecasts underpinning the Update of Stability Programme are overall deemed to be within the endorseable range of the MFAC. The forecasting methodologies adopted are also judged to be sound and in line with general practices.
In particular, the MFAC considers the real GDP growth forecasts for the years 2016 – 2019, respectively at 4.2%, 3.1%, 2.9% and 2.4%, to be achievable, also when considering the 6.3% real growth registered in 2015. These projections are within a relatively close range to similar forecasts produced by other local and international institutions.
The sources of real GDP growth are expected to fluctuate throughout the forecast horizon, with domestic demand being the main driver for growth in all years apart from 2018, where net exports are expected to be the main source of growth. This economic outlook is conditioned by the projected trajectory for gross fixed capital formation. In turn, this is driven by a number of investment projects which are expected to take place during the forecast horizon. The non-materialisation or slower-than anticipated progress in such public and private sector projects thus constitute a downside risk to the forecasts for the investment expenditure component within GDP. A further element of downside risk to real economic growth relates to the projected export performance, particularly for the outer forecast years. These downside risks are conditioned by the assumption that the euro retains its relatively competitive exchange rate and by the assumed positive performance of Malta's main trading partners against a background of ever changing international economic conditions.
With regards to private consumption expenditure, this is expected to expand further but to decelerate from the high growth rate registered in 2015. The MFAC considers this trajectory to be plausible, when evaluated against the backdrop of the recent positive labour market developments, characterised by employment growth and low unemployment rates, a scenario which is likely to continue prevailing throughout the forecast horizon.
The MFAC finally notes that the forecasted path for general government final consumption expenditure is characterised by an uneven growth pattern throughout the forecast horizon, based on the latest estimates prepared by the Ministry for Finance. The plausibility of the fiscal projections for the period up to 2019, are however evaluated in depth in a separate report which the MFAC will be publishing in the coming weeks.
The full report, entitled “An Assessment of the Macroeconomic Forecasts for the Maltese Economy prepared by the Ministry for Finance in April 2016”, is available on the website of the Malta Fiscal Advisory Council http://www.mfac.gov.mt.