Unemployment to stay low, surplus to gradually decline, Central Bank predicts

Malta’s economy is expected to continue to grow strongly over the next three years, but growth is expected to be lower than in 2017, according to the Central Bank’s latest economic projections for 2017-2020.

A stronger than expected expansion in net exports has also led to an upward revision in growth compared to the last set of forecasts.

Domestic demand will be the main source of growth in economic activity over the coming three years, stimulated by an increase in private investment when compared to 2017’s lull, according to the Bank’s forecasts.

An increase in labour supply due to net migrant flows and gains in efficiency will also support growth in demand.

Net exports will also continue to give a considerable contribution, albeit to a lesser extent than in the previous few years.

Less private consumption, more goods exports and imports

Private consumption is forecast to ease over the next three years, according to the projections, mirroring an expected slow down in the growth of real disposable income. However, the amount of money people save is expected to increase over the projected period.

Exports of goods are expected to increase, following a somewhat inactive past few years, offsetting a projected decrease in service exports.

Reflecting the increase in good exports, growth in imports is set to increase sharply in 2018.

Unemployment still at record lows, despite slowdown

Employment is expected to grow at a slower period over the next three years, in line with the reduced rate of economic growth. Despite this, employment will still grow at a rate well above the historical average.

Unemployment should remain at record lows in 2018 as a result of the increased labour supply.

In the following two years, unemployment is predicted to rise only slowly, remaining historically low.

Wages are expected to increase at a faster rate in 2018, however this growth will decelerate in 2019 and 2020.

Inflation in prices, based on the EU’s Harmonised Index of Consumer Prices, will accelerate gradually over the next three years, the Bank’s forecasts predict, reaching a rate of 2% by 2020.

Government surplus increase in 2017, decline by 2020

The government surplus is expected to have increased from 1.1% of GDP in 2016 to 2.1% in 2017, as the government earns more than it spends.

However, the surplus is projected to decline to 0.6% of GDP by 2020. A decrease in gross savings due to less government revenue over time, together government spending increasing at a faster rate, are behind this surplus decrease.

The Bank’s outlook for the government’s balance is more positive than in previous predictions, due to a higher than expected growth in income from taxation in 2017, and a revised estimation of how much money the government will make through the citizenship programme.