Malta has maintained a positive growth forecast that is faster than European averages, yet after being removed from the Financial Action Task Force (FATF)’s grey list on Friday, it has to focus on attracting investors, economist JP Fabri said.
This follows the release of the Central Bank of Malta’s outlook for the Maltese Economy for 2021-2024, that forecasts Malta’s Gross Domestic Product (GDP) to grow by 5.4 per cent throughout 2022, a downward revision of 0.6 per cent from earlier projections.
Additionally, the Central Bank also expects GDP growth to sit at 4.9 per cent and 3.8 per cent in 2023 and 2024 respectively, a drop of 0.4 per cent in 2023 from previous projections.
“Russia’s war against Ukraine has severely hit confidence, caused energy and food prices to soar further and, together with pandemic-related disruptions in China, compounded existing supply chain pressures,” Mr Fabri said.
He remarked that such factors are “strong headwinds” for the Euro area’s economic recovery, especially since they come at the same time several pandemic-related restrictions are being eased.
“All this implies much weaker – though still positive – near-term growth prospects, with headwinds fading after 2022 and growth in the medium term standing somewhat above the historical average rate,” indicating a “gradual recovery” from the negative impacts of the pandemic and the war in Ukraine, Mr Fabri added.
As a result, the Euro area’s real GDP is expected to grow by 2.8 per cent on average in 2022, and by 2.1 per cent in both 2023 and 2024, reflecting downward revisions from the European Central Bank (ECB)’s staff projections for March 2022 of 0.9 per cent for 2022 and 0.7 per cent for 2023, while 2024’s projection has been revised up by 0.5 per cent.
The difficulties that have been faced on a global and European level have also impacted Malta’s performance, yet the relatively high GDP growth reflects “the strong and robust economic growth that is expected to materialise over the forecast horizon”.
Due to it being a small open economy, Malta remains highly integrated in the global economy, and such economic forces and impacts will undoubtedly have an effect on Malta’s economic performance.
The war in Ukraine “represents a significant negative supply shock especially given that Ukraine is a key regional and global hub,” particularly when it comes to agriculture, metals, and chemical manufacturing, Mr Fabri added, and so it will have a “significant” impact on global prices and supply.
Despite such challenges and the risks that remain “tilted downwards”, Mr Fabri still maintained that Malta has a positive growth forecast that beats the European average, “confirming Malta’s strong economic potential”.
“If the Government continues with a focus to diversify and strengthen the islands’ competitiveness and attractiveness, Malta can continue enjoying a robust performance,” he said.
However, he stated that “there is no room for complacency”, before adding: “After having successfully gotten off the grey list, Malta needs to focus on ensuring that it remains attractive by first and foremost focusing on its key economic sectors and futureproofing them.”
Mr Fabri emphasised the importance of ensuring Malta’s key economic sectors “remain relevant”, with them requiring a transformation as well as vertical and horizontal diversification.
“We need to ensure that our ecosystems are not fragmented but are working well and that an enterprise setting up in Malta has access to talent, banking, infrastructure, and ancillary services,” he continued.
A focus on investment in talent capacity along with a transition to a greener and more digital-enabled economy are a must.
On whether Malta will have a challenging next couple of years, Mr Fabri said that no country is immune to global economic pressures, yet it can always reduce its exposure to such effects by building its own resilience.
“Over the years, Malta has shored up its resilience, although it is not immune to such cyclical fluctuations, especially spiralling costs, and the coming months will be challenging in this regard,” he said.
“The Government needs to continue supporting the economy through various incentives and support measures which are however tied to conditionality, focusing on transformation and productivity-enhancing investment,” Mr Fabri added.
Additionally, an improvement in public finances is “critical”, as well as Malta’s capacity to absorb the most amount of European funds that can support such investments and resilience-enhancing measures.
Mr Fabri is the Co-Founding Partner of Seed Consultancy, with a wealth of experience as an economist in both the private and public sector.
He is also a Founding Member of 40under40, as well as a Member of the Investment Migration Council.
Among his previous roles, he also formed part of the private offices of former Prime Minister of Malta Lawrence Gonzi, along with the offices of former Governor of the Central Bank of Malta Josef Bonnici.