Malta to register second highest economic growth next year, EU autumn forecast shows

Malta’s economic growth will be the second highest in the EU next year, according to the European Commission’s autumn forecast released today.

With GDP estimated at 2.8%, Malta is one of only four member states with a GDP forecast higher than 1% - the others being Ireland (3.2%), Romania (1.8%) and Bulgaria (1.1%).

Other member states will register GDP growth of 1% or less next year, while Germany, Latvia and Sweden will see their economies contract.

The Euro area and the EU are expected to grow by 0.3% respectively in 2023.

But in the short-term, the European Commission is expecting the EU and euro area to contract in the last quarter of this year and first quarter of 2023, amounting to a technical recession.

Malta is expected to end 2022 with GDP growth of 5.7%, slowing down next year on the back of weaker exports and a reduction in household purchasing power as a result of higher prices.

High deficit to persist

Malta’s deficit will decrease but still remain among the highest in the EU next year at 5.7%. 

as government maintains hefty energy subsidies to cushion the inflationary impact.

These energy-related support measures are estimated to account for 2.9% of GDP in 2022 and are expected to further rise to 3.5% of GDP in 2023, before declining to 2.7% of GDP in 2024. As a result, the general government deficit is set to decrease only marginally in 2023 and more markedly to 4.4% in 2024.

The government debt-to-GDP ratio is set to increase to 57.4% in 2022 and gradually reach 60.6% in 2024, remaining within the environs of the 60% mark set by the Maastricht criteria.

The European Commission says labour shortages will remain a bottleneck going into 2023.

In the past two years, Malta managed to maintain strong employment growth by limiting the impact of the pandemic through fiscal support. Employment grew by 2.9% in 2021, with the wage support measures remaining largely in place. Employment is set to continue growing at a similar pace in 2022 and over the forecast horizon.

Malta’s unemployment rate is forecast to decline to 3.2% in 2022, and to further decrease to all-time lows in 2023 and 2024.

The European Commission says that despite government’s intervention to keep energy prices unchanged, inflation in 2022 is expected to rise to 6.1%. Inflation is particularly high in imported goods, particularly food, transport, hospitality and housing services. These factors will continue to drive price increases in 2023, with inflation expected at 4%. At the same time, wage growth is expected to remain moderate.

Prime Minister Robert Abela welcomed the forecast, tweeting that government policies “are making a real difference”.