Malta’s Economic Resilience
The reputable ratings agency Fitch has affirmed Malta at ‘A+’, with a stable economic outlook. Following almost two years of significant restrictions which hindered economic growth, this is welcome news as the ratings agency signals a recovery.
Malta’s economic growth accelerated faster than expected last year, indicating a demand for several products and significant spending power. This solid performance is attributed to a number of factors including the rebound in tourism. The country is also backed by a highly encouraging economic performance prior to the pandemic.
Although there are several signs of a strong economic rebound, deficit figures raise concerns. The support given by the Government throughout the tougher months of the pandemic to sustain low rates of unemployment and maintain livelihoods is the key driver for this deficit being registered. Malta’s economy is also quite small, leaving it dependent on external developments.
GDP in 2021 increased by over 9%, which is quite positive when considering that the projection was that of 5.7%. With that said, the forecast for growth was reduced to 4.2% for 2022 in view of the Russian invasion and subsequent sanctions which are anticipated to impact the economy.
Malta’s exposure to Ukraine, Russia and Belarus is quite limited. With that said, Malta is an economy that is dependent on the tourism markets within both the European Union and United Kingdom. Malta’s tourism sector is expected to continue accelerating towards its recovery, especially when considering that 2021 figures are 65% below those in 2019. An increase in private consumption is also anticipated between 2022 and 2023.
Inflation is expected to play a part for the economy in 2022. With increasing prices all across the globe, for food, gas and electricity, the way the Government reacts to this will have an impact on the local economy. The latest information indicates that the Government is working towards maintaining fixed prices for gas and electricity. The Government is also intervening to keep wheat prices stable.
Fitch anticipates that Malta’s improvement in public finances will take place in a less expeditious manner. The reduction of deficit when comparing 2020 and 2021 respectively was not as strong as anticipated.
Fitch also recognised Malta’s work in strengthening its institutions on both the judicial and anti-money-laundering fronts. The agency also went on to add that greylisting has not materially affected Malta’s economy. The recovery and encouraging performance of the financial services industry have diluted the effects of greylisting. This is also combined with the possibility that the Financial Action Task Force (FATF) could take a vote to have Malta removed from the greylist this coming June.
What do you make about Malta’s economic prospects? Let us know your thoughts in the comments section below.