Malta’s Economic Outlook 2020/2021: The European Commission

The European Commission (EC) has predicted robust economic growth for Malta in 2020 and 2021, although the pace of expansion will slow.

The EC foresees a continued surplus reduction to 1% in 2020, having fallen from 1.9% in 2018 to 1.2% in 2019, while the Maltese government says that it “is expected to remain stable.” European Commissioners also predict that Malta’s debt-to-GDP ratio will fall to 39% by 2021.

The EC forecasts GDP growth for Malta of 4% and 3.8% for 2020 and 2021 respectively. It is a marked reduction on the 6.8% and 5% growth rates seen in 2018 and 2019, respectively, as the island country’s economy moderates.

In 2019, Malta was second behind Ireland as the European Union’s fastest growing economy. However, it is set to overtake the Emerald Isle’s speed of expansion in 2020 and 2021, which the EC predicts will grow at 3% and 3.2%, respectively.

What’s driving Malta’s growth?

The underlying reason for Malta’s stunning growth over the past five years is due to a structural shift towards a fast growing, internationally-oriented services sector. The country has enabled favourable labour conditions for job creation. Unemployment stands at a low of 3.4%, compared to the EU average of 6.3%.

The strong unemployment rate in particular has increased average household disposable income, helping the economy to a record high in domestic consumption. In addition to domestic demand, export growth has also been an important contributing factor, with the “creation of new export-oriented service sectors, such as online gaming, and a pronounced expansion of existing ones, such as aviation services.”

Government investment initiatives are also a boon for continued positive economic performance. Primarily driven by EU funding, public investment-to-GDP is set to reach over 4%. In particular, this will see considerable spending on planned infrastructure and health projects.

What could the future have in store?

2017 saw record GDP growth for Malta of just under 7% on the previous year. The country experienced fast job creation, dropping from 5.5% unemployment in 2015 to 4% in 2017. Private consumption growth and job creation are both in stages of moderation, while the latter is likely to slow. However, the EC predicts an uptick in import growth in line with greater public investment.