Fenech says 3% deficit target is ‘clear target’ for government

Finance minister Tonio Fenech said the reduction of the country's deficit to 3% of gross domestic product was attainable, in a statement released after European Commissioner Olli Rehn said Malta and four other member states had to speed up their deficit cutting measures.

According to the EC's autumn forecast, a subdued domestic demand would see the government's deficit widen within 2012.

"Our forecast is that cutting down the deficit to under the 3% target is possible," Fenech said. "Consolidating our finances is a crucial objective for the country's stability. The country has to stay competitive, attractive to investment and create employment... In the present international circumstances and the precarious state of other European countries, stability will give confidence to the markets and investors."

Fenech said government's efforts had so far been focused on the safeguarding of jobs and helping the manufacturing and tourism industries, resulting in the postponement of its financial targets.

"Our target this year is to bring down the deficit to 2.8%," Fenech said, ahead of his Budget presentation on Monday, 14 November. "Next year we want to cut by another 0.5%."

Brussels believes economic growth is expected to remain subdued in 2012 before the Maltese economy starts gaining speed in 2013.

The EC said Malta's deficit was expected to widen to 3.5% of gross domestic product in 2012 and 3.6% in 2013.

Brussels noted that economic growth in the first six months of 2011 was driven by exports growth, although a recent report by the Economist Intelligence Unit raised questions on the way fuel exports had outstripped fuel imports: something the National Statistics Office this week revealed was due to the lack of data being registered by fuel traders.

The EC said weaker economic activity was set to continue in 2012, bringing real GDP growth down to 1.3% before picking up to 2% in 2013.

The silver lining in the EC's forecast is job creation, where strong wage growth will support private consumption, and will also provide enough place for increased integration of more women in the labour force: "The projected pace of job creation is sufficiently strong to absorb them and produce a slight decrease in the unemployment rate."

The forecast also says energy inflation will slow down due to a drop in oil prices in the second half of 2011. Still, energy inflation will remain relatively high in 2012 as the decline in oil prices is offset by higher electricity rates.