The European Commission has predicted that Malta’s gross domestic product will drop by 6% in 2020 owing to Covid-19, but then stage a bounce back by 6.3% in 2021.
“After several years of high growth fuelled mainly by domestic demand, Malta’s economy was beginning to slow down even before the COVID-19 pandemic. The disease and the containment measures it has necessitated, however, are expected to cause the economy to swing from growth of 7.3% in 2018 and 4.7% in 2019 to a contraction of 6.0% in 2020”, the Commission said in its economic forecast.
The 6% decline prediction is the most positive one across the Euro area, with other countries all being forecasted of losing more GDP this year. From the rest of Europe, only Poland (-4.6%), Denmark (-5.2%), and Sweden (-5.3%) are predicted to fair better than Malta, while Romania’s economy is forecasted to decrease at the same 6% as Malta.
The predicted 6.3% bounce-back for 2021 is also on the higher side when compared with the rest of Europe.
The Commission said that Malta will be significantly affected by the pandemic, mainly of the impact on the tourism sector and because of the country’s partial lockdown and disruption to international supply-chains.
“As a result, investment and net exports are expected to be severely hit by the crisis, as well as private consumption. Numerous financial aid packages from the government, however, should help to cushion the economic impact”, the Commission said.
Recent economic indicators, the forecast continued, particularly in the construction and manufacturing sectors suggest a modest recovery.
“In addition, upward revisions in GDP figures from the second half of 2019 may add an artificially negative statistical effect in 2020 rates”, the Commission added.
The easing in general restrictions is expected to re-launch domestic demand, pushing GDP annual growth to 6.3% in 2021, the forecast read – a growth rate which would basically negate the loss in GDP throughout this year.
“The main driver of the recovery is set to come from investment, supported by the recovery packages announced by the authorities”, the forecast concludes before also adding that net exports are also set to contribute significantly to the rebound as global trade gradually normalises.
Forecast a show of support in government’s economic recovery measures - government
In a statement issued after the forecast was released, the government said that the forecast is a show of support in its economic recovery measures.
The government noted how the Commission had said that the numerous financial aid packages from the government should help cushion the economic impact of the pandemic.
“While many expressed their disagreement with the government’s decisions to relax restrictive measures, the Commission’s report notes that ‘the easing in general restrictions is expected to relaunch domestic demand, pushing GDP annual growth to 61/4% in 2021’”, the government observed.
The statement noted that this strong rate of growth will negate the economic hit which will be sustained in 2020.
“With these comments, the European Commission is indicating that it strongly agrees with the government economic politics, especially the direction taken in its economic regeneration plan”, the government said before noting that the United Nations’ International Social Security Association had also supported the measures.
The government said that more measures as part of the plan will be implemented in the coming weeks.
EU will experience deep recession due to pandemic - Commission
The forecast was part of a wider Summer Forecast which concluded that the EU economy will experience a deep recession this year due to the coronavirus pandemic, despite the swift and comprehensive policy response at both EU and national levels.
“Because the lifting of lockdown measures is proceeding at a more gradual pace than assumed in our Spring Forecast, the impact on economic activity in 2020 will be more significant than anticipated”, the Commission said.
The Summer 2020 Economic Forecast projects that the euro area economy will contract by 8.7% in 2020 and grow by 6.1% in 2021. The EU economy is forecast to contract by 8.3% in 2020 and grow by 5.8% in 2021.
The contraction in 2020 is, therefore, projected to be significantly greater than the 7.7% projected for the euro area and 7.4% for the EU as a whole in the Spring Forecast.
Growth in 2021 will also be slightly less robust than projected in the spring.
The impact of the pandemic on economic activity was already considerable in the first quarter of 2020, even though most Member States only began introducing lockdown measures in mid-March. With a far longer period of disruption and lockdown taking place in the second quarter of 2020, economic output is expected to have contracted significantly more than in the first quarter.
However, early data for May and June suggest that the worst may have passed. The recovery is expected to gain traction in the second half of the year, albeit remaining incomplete and uneven across Member State, the Commission said.
The shock to the EU economy is symmetric in that the pandemic has hit all Member States. However, both the drop in output in 2020 and the strength of the rebound in 2021 are set to differ markedly.