Malta’s strong GDP growth is set to continue as domestic demand replaces net exports as the main engine of economic activity, according to the European Commission’s Autumn 2018 Economic Forecast.
Business and consumer confidence indicators remain high and real GDP growth is expected to average 5.4 per cent in 2018.
The report stated that Malta’s internationally-oriented services sector continues to underpin the large current account surplus. Inflation is expected to pick up as wage pressures start gaining pace. The government balance is projected to moderate but remain in surplus.
The report said that in the first half of 2018, real GDP growth slowed moderately compared to 2017, which saw a remarkable 6.7 per cent growth rate. Private consumption growth accelerated, while net exports declined as a result of rapid import growth in the second quarter.
“Export growth is expected to slow down over the forecast horizon from the high growth rates registered in recent years, in line with the projected moderation in global demand, while imports are expected to rise, driven by investment growth.”
“Growth is expected to gradually ease over the forecast horizon to an annual average rate of 4.9 per cent in 2019 and 4.4 per cent in 2020. Domestic demand is set to be the main driver of growth, supported by strong investment growth.”
The report added that risks to the macroeconomic outlook appear broadly balanced. “As Malta’s trade-to-GDP ratio stands at around 250 per cent, further escalations in global trade tensions would imply particular downside risks to Malta’s growth projections. On the upside, domestic demand may exceed growth expectations, if investment rises faster than anticipated and employment growth surprises on the upside, pushing up households’ consumption.”