With the transition period of the UK’s withdrawal from the European Union ending on the 31st of December 2020 but no trade agreement yet in place, businesses are faced with further uncertainty in a period already marked by crisis.

Thankfully, the economic impacts on Malta are forecast to be negative but relatively insignificant, causing a contraction of the economy by 0.24 to 0.54 per cent of GDP, although a no-deal Brexit may increase these effects.

These figures are eclipsed by the growth rate of the Maltese economy over the past years, although the impact and duration of the COVID-19 pandemic remains to be seen.

WhosWho.mt spoke to Noel Rapa, who works as an economic researcher at the Central Bank, to find out what to expect when the UK finally leaves the EU.

Mr Rapa had in March 2017 written a policy note for the Central Bank on Brexit’s short to medium term impact on the Maltese economy.

Asked whether his predicted negative but small effect on the Maltese economy had been help up in the intervening years, Mr Rapa points out that the analysis had been undertaken in the immediate aftermath of the Brexit vote, when the degree of uncertainty surrounding the economic repercussions of the UK’s departure was still very high.

However, even after invoking Article 50 in March 2017, the UK sought a number of extensions before finally exiting the EU in January 2020. Since then, the UK is still on a transition period which should end by end of this year.

“To this end,” he says, “the economic losses to be incurred by the UK and its trading partners (including Malta) between 2017 and 2019 have been lower than what was forecasted back in the aftermath of the Brexit vote.”

“Indeed, most of the economic effects have been limited to an increase in uncertainty, with no tangible effects on trade originating from new trade barriers.”

However, he says that when the transition ends, the UK’s and, to a lesser extent, the EU’s economic prospects are expected to be negatively affected, in line with the estimates produced in the Bank’s note.

Malta will not however suffer the brunt of the trade impacts, largely as a result of the UK’s decline in importance as a trading partner for Malta since the 1980s. Mr Rapa says this was caused by Malta’s rapid development and diversification, both in terms of economic structure and trading partners.

“The share of Malta’s trade with the UK could decline further as the Maltese economy continues on its path of structural transformation,” he says, “with the extent to which Brexit is expected to affect UK-Malta trade flows depending heavily on the type of agreement reached between the UK and the EU.

“In the case of a no-deal Brexit, the share of Maltese trade with the UK would probably decline further.”

Such a case seems likely at this point, with the UK Prime Minister Boris Johnson last month telling Britons to prepare for a no-deal. Whether his comments were simply meant to strengthen his negotiating position is still up for discussion.

With thousands of British citizens working in Malta, would a no-deal Brexit cause havoc?

Mr Rapa does not think so. “British expatriates that are lawfully residing in Malta by the end of the transition period will be able to continue residing and working in Malta upon applying for residency before 21st June 2021. These rights are expected to be preserved for as long as the Withdrawal Agreement stays in place.”

“However,” he continues, “the possibility of abrupt halts to trade deal negotiations could make it harder to address unresolved migration issues, most notably to what would happen to British expatriates that miss the 21st June 2021 deadline. The current negotiations also cover a range of social security matters, including the export of benefits and pensions.”

“Therefore, the full effect on immigrants from the UK will only be known once the negotiations end.”

Turning finally to sectorial impacts, Mr Rapa underlines that any such effects are very much dependent on whether a trade deal between the UK and the EU is reached.

“Sectoral results are even more sensitive to whether future trade between the two parties will be covered by a trade agreement,” he says. “Moreover, the extent to which each sector will be affected by Brexit depends not only on whether a trade agreement will be reached, but also on the specific agreements covering each sector as well as on that sector’s exposure to the UK.”

“At the current juncture it is still difficult to specifically identify those industries which are likely to be hit hardest by the UK’s exit from the EU and those which are poised to attract new companies as they seek to relocate within the EU jurisdiction.”

All comments are Noel Rapa’s own and do not necessarily reflect those of the Central Bank of Malta.