Maintaining Malta’s track record of high economic growth will come at a heavy price unless the country embraces a deep transformation in the area of sustainability, with the sensitive task made more difficult by prevailing economic conditions related to the war in Ukraine and longer post-COVID effects.

This was the position communicated by APS Chief Risk Officer Giovanni Bartolotta during a conference hosted by the Malta Association of Credit Management, where he gave an evidence-based presentation outlining the current situation and the risks and opportunities of the coming years.

Mr Bartolotta referred to a wealth of public data pointing towards a milder-than-expected economic slowdown, with most of the EU now expected to avoid recession.

However, there remain significant and persistent risks, he told attendees.

The security of gas supply and the sluggish pace of alternative power sources in coming online could yet make the energy crunch repeat itself, he said, noting that Europe has been “very lucky” to have a relatively mild winter. “That luck might not hold, though.”

It could also be argued that the outsized role of luck in Europe’s recent economic fortunes shows the weak footing the continent finds itself in.

The strain of higher input costs coupled with higher interest rates may also impact the corporate sector, Mr Bartolotta said, despite it weathering the storm of the last three years “reasonably well, so far”.

That has, he pointed out, been in large part due to the generous assistance provided by governmental entities – across most of Europe. The continuation of such assistance, however, cannot be taken as a given, with governments and central banks facing their own contradictions, specifically “the need to rein in inflation through higher interest rates coupled with the necessity of fiscal measures to cushion social costs”.

Finally, inflation, can be particularly stubborn and persistent. Mr Bartolotta notes that the historical record indicates inflation can be difficult to bring down if it exceeds 10 per cent.

Locally, the picture is a bit rosier, with Malta forecast to grow at a higher rate than the EU average for the coming years, while benefitting from a lower rate of inflation – largely due to the significant energy subsidies extended by Government. However, their cost, coming in at some 5-10 per cent of annual public spending, is a cause for concern, as it is shifted onto future generations.

Unemployment is expected to remain marginal for the medium term, but high levels of employment, Mr Bartolotta said, have not been matched with increases in productivity.

In fact, between 2016 and 2019, Malta’s economic growth was solely driven by employment growth – productivity actually decreased during this period.

The increase in the number of jobs and the corresponding need to increase the labour supply saw the share of foreign workers in Malta rise from 5.6 per cent in 2012 to 25.7 per cent in 2021.

Speaking to WhosWho.mt, Mr Bartolotta said: “While the influx of foreign workers helped reduce skills shortages and mismatches, there are concerns that such large increases in the population might not be sustainable in the long term.

Malta is a small island with limited carrying capacity and overpopulation will have negative effects on the environment, water resources, infrastructure, traffic, pollution, and overall quality of life, eventually damaging the tourism industry – one of the pillars of Malta’s economy.”

Turning to his predictions for 2023, Mr Bartolotta said that supply shocks will ease, but are not likely to fade completely.

Inflation, he added, can be expected to fall sharply, but interest rates will likely remain relatively high through to the end of the year.

He warned against an overoptimistic understanding of Europe’s dodged economic downturn: “Recession will be avoided, but the recovery will be disappointing.”

Mr Bartolotta questioned whether the economic model that boosted Malta’s development over the last decade will remain sustainable, and argued that future growth will depend on five key points.

These include:

• Digital transformation and the embracing of innovation to increase productivity.
• A workable and forward-looking climate change and adaptation policy.
• A shift towards sustainable tourism, with a focus on value added.
• The smart use of a one-off opportunity to upgrade infrastructure through the EU’s Recovery and Resilience Fund.
• The further strengthening of Malta’s governance framework.