Malta’s economic growth will take, as expected, a significant hit due to the outbreak of COVID-19.
There are not too many surprises in the EU’s traditional Spring outlook of European economies: Private consumption and trade are projected to take a significant hit, while increased public spending should partially mitigate the effects of the recession. Employment is forecast to decline temporarily and the unemployment rate to increase. The government’s balance is expected to slip into deficit and public debt to rise, as the government takes fiscal measures to offset the crisis.
Malta is expected to fare better than the eurozone average with the Commission seeing a combined 7.7% loss across the region.
However, the report notes that even before the onset of the pandemic the rate of economic growth had eased, despite remaining in positive territory due to a strong performance by industry and the construction industry. While exports had suffered in previous months, tourism more than made up for any losses in the former.
The European Commission is forecasting a 5.75% contraction in Malta’s GDP, but the economy is expected to recover more than well with a solid 6% in 2021. The EU believes that the strong labour market, the large ongoing infrastructural projects and households’ high saving rate may cushion the crisis’ impact on consumption.
Understandably, the EU notes that Malta’s success or failure does not depend on local policy on its own, since Malta’s economy is highly sensitive to global uncertainties and the growth performance of its trading partners. Their economic development in the wake of the COVID-19 pandemic may weigh on Malta’s exports and pace of recovery more strongly than assumed in this forecast.
The fast pace of economic growth in Malta led to a record-low unemployment rate of 3.5% in 2019, but in the wake of the COVID-19 crisis, the temporary closure of tourism-related activities is set to have a harsh impact on employment. Despite the financial aid made available to employees and the government’s measures to cushion the impact on corporates, the unemployment rate is projected to increase to around 6% in 2020 before decreasing again in 2021 to 4.5 %.
The EU is also forecasting a decline in the cost of living, particularly as it is expecting a decrease in a fall in fuel prices in 2020.