Creditreform Rating: Malta’s A+ grade re-affirmed while positive outlook downgraded to stable

23rd May 2020

‘The economy should recover through the second half and beyond as restrictive measures are gradually eased.’

German-based ratings agency ‘Creditreform Rating’ re-affirmed Malta’s A+ grade while downgrading a positive outlook to stable “against uncertain growth and public-finance backdrop created by COVID-19”.

Malta has so far received stable ratings by Fitch, Standard and Poor’s and Moody’s.

Creditreform, on Malta, said “the economy should recover through the second half and beyond as restrictive measures are gradually eased”.

In its reasons for downgrading Malta’s outlook from positive to stable, Cereditreform provided two considerations:

“The exceptional domestic and external shock linked to the novel coronavirus will likely see Maltese economic activity plunging and put its labour market under severe pressure, resulting in the worst recession seen in decades. The economy should recover through the second half and beyond as restrictive measures are gradually eased, but uncertainty around medium-term outlook is unusually high;

“Policy efforts devoted to COVID-19 should mitigate the worst effects on the corporate and household sector, but lift the public debt ratio materially, albeit from comparatively low levels.

The ratings agency noted that the “Maltese economy is facing a massive combined external and domestic shock which feeds through its supply and demand side.

“On the one hand, Malta’s small and open export-oriented economy, and its tourism industry in particular, will be hit very hard as the global economy contracts sharply and external demand declines, whilst multiple disruptions in international supply chains are set to hurt production.”

It also noted that containment measures to protect the population and reduce social contact “have resulted in a domestic shock that restricts consumption and economic activity more generally”.

In its report, Creditreform Rating praised the Maltese authorities for acting “quickly” and “implementing a significant package of measures to safeguard public health”.

“At the current juncture, we expect Malta to experience the sharpest drop in economic growth in decades, with real GDP declining by 5.5 per cent this year. We pencil in real GDP growth of 4.8% in 2021, as we assume that the effects of COVID-19 will gradually subside going forward and the economy will recover through the second half and beyond, with economic disruptions concentrated in the second quarter.”