Malta economy expected to hit pre-COVID levels around mid-2022 as EC upgrades growth outlook

According to the latest forecasts by the European Commission (EC), Malta’s economy, as measured by Gross Domestic Product (GDP), is expected to recover to pre-pandemic levels of activity around mid-2022.

The EC’s summer forecast, released on Wednesday, indicate a slightly increased outlook for economic recovery in 2021 (5.6 per cent year-on-year GDP growth, compared to 4.6 per cent in spring projections), though a slightly lower 2022 prediction (5.8 per cent, compared to 6.1 per cent).

Another revision saw the Commission increase its estimates for the damages dealt to the economy during 2020, suggesting that GDP fell by 7.8 per cent, whereas in the previous edition of the projections it was estimated to have fallen by seven per cent.

The EC’s projections are more optimistic than the most recent estimates issued by Malta’s Central Bank, which in June predicted a 4.9 per cent growth in 2021, followed by a 5.4 per cent growth in 2022.

Discussing the outlook for Malta, and justifying its predictions, the Commission states that Malta’s economy grew at a “solid” quarter-on-quarter rate of 1.9 per cent in Q1, driven predominantly by service exports.

This increase, it explains, is one reason for its revised forecast: “The better growth outlook is driven by the strong performance in the first quarter, which has a strong carry-over effect”, it says.

The EC identifies “significant relaxation of restriction measures”, facilitated by a high pace of vaccinations in Malta and an improvement in the public health situation as key factors in its forecast.

Additionally, a continued strong improvement in business and consumer sentiment till May, including in the food and accommodation services sector, “suggest that economic activity is on a path to a solid recovery”.

This is a sentiment reflected in a recent survey by The Malta Chamber and VISTAGE Malta, which found that business confidence was on the rise, despite a potentially damaging staff shortage.

Going forward, also considering the strong uptake of Government-paid consumption vouchers, growth is expected to remain strong on the back of a gradual recovery in the tourism sector, favourable prospects for external demand for other services, and a recovery in private and public investment.

The Commission also addresses concerns about the impact of Malta’s greylisting by the Financial Action Task Force (FATF), which placed the jurisdiction under increased monitoring and sends a signal that there are increased risks of doing business in Malta.

The consequences of this, it says, represent a “limited downside risk”.

Providing predictions for inflation, the EC expects that Malta’s levels will remain largely consistent, climbing by 1.1 per cent in 2021, and 1.6 per cent in 2022.

Compared to other EU countries, Malta’s GDP projections are particularly promising, exceeding the EU average of a 4.8 per cent expected growth in 2021, followed by a 4.5 per cent GDP growth in 2022, though it is worth noting that damage dealt to the country’s economy in 2020 is also notably higher than the EU average.