Malta’s economy is still expected to fare well in the near future, despite struggles with the COVID-19 pandemic and the Russian invasion of Ukraine, economist Daniel Gravino said.
This comes after the Central Bank of Malta released its outlook for the Maltese Economy for 2021-2024, which indicated that Gross Domestic Product (GDP) is set to grow by 5.4 per cent in 2022, down from the six per cent from previous projections.
Dr Gravino highlighted how while the outlook for the Maltese economy is not as positive as it was in previous releases, “it is still good”.
“Considering that Malta’s small, open economy is highly dependent on a world economy that is still dealing with the aftereffects of COVID-19 and, more recently, the Russian invasion of Ukraine, I would say that we are faring very well,” he said.
Despite the drop, when compared to past performances and the forecasted economic growth of other European Union (EU) Member States, it is still very positive.
“It is a little higher than the 4.2 per cent growth that the European Commission forecasted for Malta recently – but four per cent or more is plausible,” Dr Gravino added.
Additionally, the Central Bank expected GDP to grow by 4.9 per cent in 2023 and 3.8 per cent in 2024, with the projection for 2023 being 0.4 per cent lower than previous outlooks.
Daniel Gravino / LinkedIn
Despite indications that Malta is performing quite well, Dr Gravino still identified several key points of concern for the economy, particularly that of inflation.
“The biggest concern has to be the fast increasing prices of many products – food, raw materials, and many others – which are increasing households’ cost of living significantly,” he remarked.
“Usually we rely on the COLA mechanism to help households deal with this problem – which in essence compensates households for having had to deal with higher prices in the previous 12 months,” yet this time round, the COLA would need to be around eight euros per week to compensate for such inflation, Dr Gravino stated.
This change would be a drastic increase from what employers are used to paying, “usually in the region of two to four euros”, while businesses also face higher costs of their own, he continued.
Dr Gravino emphasised the risks that such an inflationary trend poses, especially if businesses are unable to absorb the labour cost increase, which could lead to them passing it on to the consumer by charging higher prices, leading to an inflationary spiral, or else cutting costs by reducing their headcount.
Neither of these outcomes is desirable, and sufficient economic growth is required to “allow businesses to absorb those cost increases so that we can strike a reasonable balance that allows for both sides – households and businesses – to do well,” he commented.
Another chief concern is that due to increasing prices, the Government will not be able to continue providing subsidies to stabilise energy, wheat and other commodity prices in the long-term.
“While the country’s relatively low debt levels provide headroom that enable the Government to support the economy by borrowing, our deficit figures – relative to GDP – are amongst the highest in the EU,” Dr Gravino remarked.
“This cannot be our long-term strategy,” he said, before adding that less reliance on such interventions is needed.
Dr Gravino is a Resident Academic Lecturer in the Department of Economics at the University of Malta.
He has prior experience as Director of Economic Advisory Services at Grant Thornton Malta, as well as Head of Economics in Malta Enterprise’s Research and Policy Review Unit.
Dr Gravino also served as Director at the Office for Competition at the Malta Competition and Consumer Affairs Authority for a year.
He graduated with a Doctorate of Philosophy in Economics from Loughborough University, along with a master’s of science degree in Economics and Industrial Organisation from the University of Warwick.
