Update 2 | Deficit in 2012 at 2.6%, Fenech confirms budget for last week of November

Welcoming positive autumn forecasts set by the European Commission for Malta, Finance Minister Tonio Fenech tdoay confirmed that the budget will be presented on Monday 26 or Wednesday 28 November.

Addressing the press at the Finance Ministry, Fenech said that the EC's forecasts were based on the framework which makes up Budget 2013. "This report sends a clear message that government can go ahead with its planned budget with peace of mind," Fenech said, adding that if the forecasts had been different government would have had to change its budget.

Fenech also welcomed the recommendation to be out forward by Olli Rehn so that Malta is taken out of the excessive deficit procedure. "The EU forecasts Malta's deficit will be around 2.6% this confirming that it's under the 3% threshold. Rehn's statement confirms government's positive work in tackling the deficit - and contradicts the Opposition's repeated attacks," he said.

Asked by MaltaToday whether he has reached a decision on the PN deputy leadership contest, Fenech said: "I'm now closer to taking my decision" and remarked that with the Commission's approval now out of the way he could focus more on the issue.

The EU's economic affairs Commissioner Olli Rehn said that he was proposing a stop to the eccessive deficit procedure against Malta, in the wake of the publication of the EU's economic projections for 2012-2014.

The Commissioner said that Malta's finances "are improving, its debt is improving, and will continue to improve."

In its autumn forecast [Opens PDF] which captures the state of the economy as government prepares to forge ahead with its budget for 2013, the EC said Malta's impressive rebound in 2010, from the recession in 2009, had lost steam in 2011.

"The weakening in economic activity was particularly pronounced at the end of 2011 and the beginning of 2012 when the economy was reported to have slipped back into technical recession...

"For 2012 as a whole, real GDP is forecast to expand by 1%, driven entirely by net exports, which benefit from improved external competitiveness and a remarkably resilient tourist sector. These developments are projected to result in a marked improvement in the current-account balance."

Malta is expected to have a surplus of around 2% of GDP after recording a deficit over the past decade, but domestic demand and inventories are starting to appear weak and drag economic growth down.

Real GDP growth is projected at 1.6% in 2013 and 2.1% in 2014, outpacing the euro-area average, thanks to a recovery in domestic demand, investment from EU-funded projects, as well as the construction of the Malta-Sicily electricity interconnector.

Household consumption is also projected to slowly recover in 2013-14, mostly on the back of a resilient labour market and higher disposable income, as well as employment and average wages - partly boosted by the annual COLA - and by new jobs likely to be created in high-skilled occupations.

In 2011 the general government deficit narrowed to 2.7% of GDP, from 3.6% in 2010, mainly due to a greater tax collection effort. In 2012 the deficit will narrow to 2.6% of GDP, while primary expenditure by government will rise by 0.6 percentage points of GDP due to higher social benefits paid out and the subsidies to Enemalta.

The deficit in 2013 is expected to widen: no signs of one-off revenue earnings that could improve revenue, but a drop in expenditure as a result of tighter hiring practices in the civil service, lower social transfers as a result of the 2006 pension reform, but capital expenditure should grow by 0.5 percentage points of GDP.

Then in 2014, the deficit is projected to narrow, also due to a lower equity injection into Air Malta. The main downside risk to this scenario is related to the possible need for additional subsidies to Enemalta.