Fitch affirms ‘A+’ credit rating for Malta, with stable outlook

What to expect in 2018? A 1.5% surplus, rising house prices and labour costs, and robust growth

The Maltese economy has retained its A+ credit rating from the Fitch agency, on the back of robust growth and strong economic governance.

With low unemployment declining to 4% in 2017 when compared to ‘A’ peers, Maltese households were said to have high net worth.

Growth reached 7.2% up until the third quarter of 2017, and stabilise at an unprecedented 7%.

Growth will probably be slowed at 5.8% in 2018, thanks to strong domestic demand, low unemployment, and higher wages from increased private consumption.

Increased use of EU funds and large projects in health and education will stimulate industries for equipment and machinery investment, and higher house prices will further residential investment.

While a new Malta Development Bank is expected to support SME financing, ongoing labour shortages are likely to put pressure on wages. “Unit labour costs are set to increase despite improved labour productivity and could dampen Malta’s price competitiveness in the medium term.”

Fitch said real estate prices were still rising at a fast pace due to a strong inflow of foreign workers, booming tourism sector, exemption of stamp duty for first-time buyers and supply constraints. “However, prices appear to still be in line with fundamentals according to the Central Bank of Malta and we believe mitigating factors to potential instability stemming from the housing sector are relatively strong.”

Fitch said Malta’s shift to more service-oriented and less investment-intensive sectors will sustain a current account surplus of 9.7% of GDP, while the general government balance will remain in surplus in 2018 at 1.5% of GDP.

“Buoyant tax proceeds supported by robust nominal GDP growth, dynamic labour market and ongoing revenues from the International Investor Programme (IIP) will offset the rising wage bill,” Fitch said, referring to higher-than-expected passport sales delivering a higher fiscal surplus for the State.

“The government intends to reach a fiscal surplus net of IIP revenues over the coming years and we expect the structural balance to reach an average 0.7% of GDP in 2018-2019.”

Fitch said public spending would remain fairly stable at 38.1% of GDP in 2018, namely through social security payments, and said Malta would reap “savings from ongoing comprehensive spending reviews [that] will likely offset increasing costs in the health sector.”

Government debt was said to be “on a firm downward trajectory” thanks to economic growth, declining to 48.1% of GDP.

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