The Malta Independent 14 December 2018, Friday

Economic growth to remain robust but expected to moderate – European Commission

Thursday, 12 July 2018, 16:09 Last update: about 6 months ago

Malta’s economic growth is set to remain robust but is expected to moderate over the coming months, according to the European Commission’s Summer Economic Forecast published yesterday.

According to the forecast, domestic demand is set to become the main driver of growth in the second half of 2018, underpinned by an expansion in public and private consumption.

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Investment, meanwhile, is expected to “recover strongly in 2019, supported by projects in the health, technology and telecoms sectors”.

The Commission also forecast that the robust growth rate of residential investment is set to moderate in line with the expected slowdown in population growth.

Malta’s real GDP rose by 6.4% in 2017, one of the highest growth rates within the EU, the Commission noted.

Such growth was driven by net exports, which reflected sustained export growth combined with a contraction in imports.

The Commission also noted that, “Domestic demand was affected by a sharp decline in investment, which is attributable to strong base effects from exceptional investment growth in previous years. The solid performance of the internationally-oriented services sector contributed to maintain Malta’s sizeable current account surplus.”

The economic momentum is expected to further support employment creation, on the back of record-low unemployment and increasing labour supply, resulting from the inflows of foreign workers and the rising participation of women in the labour market.

Overall, real GDP is forecast to increase by 5.4% in 2018 and 5% in 2019.

The downside risks, in the Commission’s view, “… are mainly related to geopolitical uncertainties, which could be particularly relevant for Malta’s small and open economy, and the possibility of a slower-than-expected recovery in investment.”

Regulated prices in the electricity market and moderate wage dynamics have helped keep inflation slightly below the euro area average, with the headline annual HICP inflation being forecast to gradually pick up over the forecast horizon to reach 1.8% in 2019, driven by price pressures in the services component.

Across Europe, growth is set to remain strong in 2018 and 2019, at 2.1% this year and 2% next year in both the EU and the euro area.

However, after five consecutive quarters of vigorous expansion, the economic momentum moderated in the first half of 2018 and is now set to be 0.2 percentage points lower in both the EU and the euro area than had been projected in the spring.

Growth momentum is expected to strengthen somewhat in the second half of this year, as labour market conditions improve, household debt declines, consumer confidence remains high and monetary policy remains supportive.

Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services and Capital Markets Union, said: "European economic activity remains solid with 2.1% GDP growth forecast for the euro area and the EU28 this year. Nevertheless, the downward revision of GDP growth since May shows that an unfavourable external environment, such as growing trade tensions with the US, can dampen confidence and take a toll on economic expansion. The growing external risks are yet another reminder of the need to strengthen the resilience of our individual economies and the euro area as a whole."    

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: "Growth in Europe is set to remain resilient, as monetary policies stay accommodative and unemployment continues to fall. The slight downward revision compared to the spring reflects the impact on confidence of trade tensions and policy uncertainty, as well as rising energy prices. Our forecast is for a continued expansion in 2018 and 2019, although a further escalation of protectionist measures is a clear downside risk. Trade wars produce no winners, only casualties."

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