Malta Fiscal Advisory Council endorses official economic growth forecast

The Malta Fiscal Advisory Council said on Monday that it considers official GDP growth forecasts for the period between 2018 and 2021 to be “within its endorsable range” in its assessment of the government’s macroeconomic forecast for the same period.

It said the growth figures, estimated to be 6.1%, 5.3%, 4.8% and 4.6% respectively, were compatible with the assumptions employed and the estimated economic relationships, adding that the projections also appeared to be cautious, in that they represent a gradual moderation compared to the growth recorded during the previous five years.

The council noted that the latest available GDP growth forecasts produced by other institutions, namely the Central Bank of Malta, the European Commission and the International Monetary Fund, “portray a similar scenario of gradual moderation in economic growth and range within one percentage point for practically all the available years”.

“The fact that different independent institutions share a similar overall outlook for the Maltese economy, strengthens the confidence in such forecasts,” the council said.

On sectoral drivers of the projected growth, the council said that both domestic demand and net exports were expected to contribute positively to economic growth over the four years.

“Domestic demand is expected to be the main source of growth in each of the forecast years, but its contribution is expected to vary in intensity,” it said.

Furthermore, the council said that volatility in investment, whose forecast growth rates range between 2.6% and 10.0%, is a “recurring element of uncertainty”. This, it said, could be both an upside and a downside.

On the other hand, it said private consumption, which is the main component of domestic demand, should grow by 4.4% in 2018 before easing slightly to 3.3% by 2021.

“The council understands that such forecasts are driven by the expectation that labor market developments will remain benign, characterized by rising employment levels, rising real wages and low unemployment rates,” the council said.

With respect to government consumption, the council said it had taken note of the fact that projects were based on the updated government expenditure forecasts, and that assumptions about the expected future yield from the Individual Investor Programme, commonly known as the passports scheme.

“In relation to exports, the council notes the generally stable forecast for export growth, around 3% annually. This appears consistent with the continued pick-up in Malta’s main trading partners and the positive outlook for certain sectors.”

Growth in imports are expected to range between 1.6% and 2.9%, with the yearly fluctuations compatible with the developments in domestic demand and its consumption, the council said.

Overall, the council said it viewed the balance of risks to GDO growth to be broadly neutral with the possible downside risks associated to the external sector likely to be compensated for by possible risks related to domestic demand.

The full report can be accessed at http://www.mfac.org.mt