In 2020, Malta's Gross Domestic Product (GDP) contracted by 7%, the Central Bank of Malta (CBM) revealed in its Annual Report.

The Central Bank of Malta released its Annual Report for 2020, including its detailed financial statements, an opening statement by the Governor, an analysis of economic and financial developments in Malta and abroad, and a review of the Bank's policies and operations.

In terms of the unemployment rate, in 2020 it edged up to 4.3%. On the other hand, employment in the coming years is expected to grow by 0.5% in 2021, 2.2% in 2022 and 2.7% in 2023.

The Bank of Malta expects the economy (GDP) to bounce back, growing by 5% in 2021, 5.5% in 2022 and 4.7% in 2023. In a severe alternative scenario, such as where the vaccination programme would not be as fast as it is, the GDP would see a 3.9% increase in 2021, 4.0% increase in 2022, and a 4.0% increase in 2023.

Public finances deteriorated sharply in 2020, partly reflecting the decline in economic activity, as well as the introduction of covid-19 related fiscal support. The Bank estimates that the fiscal balance will show a deficit of close to 9.5% of GDP in 2020. The general government debt ratio rose to around 55.3% of GDP, while remaining well below the euro area average. The pandemic also left its mark on the current account balance, which is estimated to have registered a deficit for the first time in four years. Government debt is set to reach 60.3% of GDP by 2023.

The Bank's balance sheet continued to expand, reaching €10,035.4 million at the end of 2020 from €9,288.2 million a year earlier. Operating profit before transfer to provisions decreased to €42.8 million from €49.5 million in 2019. Following the transfer of €9.8 million to provisions, the amount of €33 million is payable to the Government of Malta, up from €31.5 million a year earlier.

"This was a severe financial shock like we have never seen before. It is not just the pandemic itself... but also the lockdowns," Governor of the CBM Edward Scicluna said.

Scicluna noted that the sector which suffered the most was the airline industry and the industries tied to it, such as those within the tourism sector. "However, other sectors varied as some did better than others."

"Most sectors suffered from the disruptions due to quarantine and other reasons and requirements. The financial sector was also affected, due to financial market volatility. However, it was limited," Scicluna said.

Scicluna noted, however, that the banks were "well prepared" due to the risk assessments they carried out and liquidity support they had.

In terms of whether people should expect to be taxed following government's support, Scicluna said that it depends on each country's fiscal space. "We made quite big deficits, but we had space to do so as a country."

"I'm not excluding taxation, but my message is not to think about it now. We were quite lucky to have had the fiscal space, but right now we have to make sure that we get out of the fire," Scicluna remarked.

There is a certain "treading" with the Central Bank of Malta and the European Central Bank, Scicluna said, given that although there seems to be "a light at the end of the tunnel", there are certain features which could hinder progress, such as the blood clot reports which need to be analysed whether they were triggered by the vaccines of AstraZeneca and Johnson & Johnson.

However, the Governor remarked that things were not as bad as they could have turned out to be for the banking sector and the economy. "It could have been worse. Considering the shock, the enormity of it all, and so forth, I think we should be sort of satisfied that we have avoided what could have been much worse," Scicluna said.

However, it was also noted that even in 2023, tourism will not reach the levels that Malta saw in 2019.

"We can meet these challenges if we work together with other countries," Scicluna concluded.