The European Commission expects Malta to have the fastest growing economy among EU member states next year.
According to the Autumn Economic Forecast issued last 11 November, Malta’s economy is set to see a robust recovery in 2021 and to continue on a stable growth path in 2022 and 2023. Growth is expected to be driven by a recovery in domestic demand with the contribution of net export turning positive in 2022 and 2023. Given the supportive fiscal policy stance, the general government deficit is projected to widen further in 2021 before decreasing in the next two years following robust economic growth and a winding-down of fiscal support measures.
In 2021, real GDP growth is forecast to reach 5.0%, mainly driven by domestic consumption and investment. Tourism is set to gain some ground, but to remain well below the 2019 level. Robust government expenditure continues to support the economy, including via public investment. In the coming years, following the unfolding recovery in the world economy, the growth contributions of net exports and investment are projected to grow.
Growth is set to peak at 6.2% in 2022 when the contribution of net exports is to become positive, counting on further relaxation of international travel requirements and a strong recovery in tourism. The economy is projected to reach the pre-crisis level in the second half of 2022. Further on, growth is forecast to decrease to a still robust 4.8% in 2023.
With both exports and imports growing, the current account balance is expected to remain positive and increasing towards 2022 and 2023. Potential consequences of the June 2021 decision of the Financial Action Task Force (an intergovernmental body against money laundering) to add Malta to the list of jurisdictions under increased monitoring represent a limited downside risk.
The government deficit is expected to increase to over 11% of GDP in 2021. The increase in public expenditure related to pandemic-related stimulus measures is the main factor contributing to this increase in the deficit. In 2021 Malta maintained
and extended a number of important measures, such as the wage support scheme, a voucher scheme to support the hospitality and retail sectors, utility and rent subsidies for businesses, and healthcare-related expenditures. After a decline in 2020, the tax revenues are set to increase again in 2021. On the back of the economic recovery, the corporate tax revenues improved. Supported by government measures and the relatively good performance of the labour market, revenue from social contributions continued to increase.
As the economy continues to grow and economic support measures are wound down, the deficit is projected to decline to 5.8% of GDP in 2022 and 4.7% in 2023. As a result of ongoing primary deficits, the government debt-to-GDP ratio is forecast to increase to 61.4% in 2021 and reach 63.6% in 2023. The forecast also incorporates
expenditures financed by RRF grants for a cumulative amount of 1.2% of 2019 GDP over the forecast horizon.