During 2017, private consumption expected to remain pivotal for economic growth

The Central Bank of Malta expects unemployment rate to fall further to 4.9% in 2016

Private consumption during 2017 is expected to remain one of the main drivers of economic growth, according to the Central Bank of Malta’s economic projections.

In its 2016-2019 report, the Central Bank said that real disposable income is expected to decelerate in line with the projected easing in economic activity.

Hence, private consumption is projected to decelerate throughout the projection horizon. As the latter is set to grow faster than real disposable income, the saving ratio is expected to decline.

The economic activity in Malta is expected to remain robust over the projection horizon, supported by both demand and supply factors. In particular, the energy reforms that have taken place in recent years, new investment projects, increased labour market participation and robust services exports are the primary drivers supporting the economic expansion.

Data for 2016 suggest that after three years of very strong growth, economic activity is likely to slow down this year. Real GDP growth is projected at 4.3% for 2016. It is then expected to decelerate to 4.1% in 2017, 3.7% in 2018, and 3.3% in 2019.

GDP growth is expected to be driven mainly by domestic demand. Net exports are forecast to contribute negatively in the first two years, but positively in 2018 and, to a lesser extent in 2019.

The labour market is projected to remain tight, with the unemployment rate falling further to 4.9% in 2016, before picking up slightly to 5.3% by 2019.

Real government consumption is influenced heavily by the inflows related to the Individual Investor Programme (IIP). These inflows, which are netted against consumption expenditure, rose significantly in 2015 and are expected to peak in 2016. They are set to slow down in 2017 and more than halve in 2018. In 2019 they are expected to keep the same level.

The forecast increase in government consumption in 2016 and 2017 also reflects spending related to Malta’s Presidency of the Council of the European Union.

The outlook for investment growth is strongly influenced by expected developments in specific sectors, notably in energy and aviation, as well as the take-up of EU funds. Following the strong growth in 2015, overall investment growth is projected to slow down sharply this year.

Downward international price pressures are expected to contribute towards a further easing of consumer price inflation this year. Annual inflation, based on the Harmonised Index of Consumer Prices (HICP), should ease from 1.2% in 2015 to 0.9% in 2016. It is then projected to trend up to 1.9% by 2019, reflect- ing a pick-up in international commodity prices and domestic cost pressures.

In terms of public finances, restraint in key expenditure variables is expected to contribute towards a decline in the general government deficit, with the government budget set to become broadly in balance by 2019.

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