Editorial | Robust growth but a shift is needed

The European Commission’s autumn forecast published yesterday shows that the Maltese economy will grow by 4% this year, down from the 6% registered in 2022.

This slowdown in growth is pretty much in line with the trends across the EU as the post-pandemic expansion loses its momentum. The forecast predicts that Malta’s economy will also grow by 4% next year and accelerate slightly to 4.2% in 2025.

The statistics show that Malta’s economy is doing much better than most other EU and Eurozone economies. Indeed, GDP growth in Malta this year and next is expected to be way better than the EU average.

The autumn forecast projects GDP growth in 2023 of 0.6% in both the EU and the euro area. This is 0.2 percentage points lower than projected in the summer forecast and an even larger downward revision compared to the spring forecast.

In 2024, the EU-wide economy is expected to rebound mildly on the back of higher consumption and improved investment. The forecast shows that in 2024 GDP growth is forecast to improve to 1.3%, which is still below potential and a downward revision of 0.1 points from summer.

GDP statistics for Malta show that it will remain the top performing country across the bloc in 2023, 2024 and 2025. This is an achievement that cannot be underestimated but it also requires a deeper analysis.

The economy in Malta has been shielded from energy and fuel inflation for the past two years and the government is pledging to continue doing so until 2026. This major policy decision has helped keep business costs down but comes at a hefty cost to public coffers.

Indeed, Malta’s deficit remains one of the highest in the EU. The saving grace is that Malta’s debt-to-GDP ratio is below the 60% mark and is forecast to remain so until 2025.

The Commission forecast says net exports are set to be the main contributor to GDP growth in 2023, with consumption being the main driver in 2024 and 2025.

Within this context, it is important that Malta increasingly targets higher exports rather than consumption as the main driver for economic growth. Higher consumption suggests that Malta’s population will continue to grow with all the detrimental impact this is having on communities.

Export growth in the form of tourism has recovered well with numbers now acceding pre-COVID levels. Malta must strive to remain a destination of choice in the Mediterranean.

But efforts must also be made to encourage Maltese companies to export their goods and services abroad, while making life easier for large foreign manufacturing companies to operate from here.

Economist JP Fabri, in a post-budget interview with sister publication MaltaToday, emphasised the need for Malta to start shifting from domestic demand to export growth as a GDP driver.

“If you deconstruct our GDP, domestic demand is a huge component of that. Ideally, we start seeing a shift and making sure that our export activities become much more competitive and productive so that we can generate much, much more wealth per employee and then you need less employees,” he said.

Competitiveness and improved productivity are two key elements that have to be nurtured so that Malta’s GDP growth can maintain its above-average level while cooling down population growth.

The country must be nimble enough to react and pre-empt market and technological developments in such a way as to create an enabling environment that encourages companies to move part of their production and services to Malta.

At the same time, the education system must also transform to imbue students with the skills necessary for today’s and tomorrow’s work and social environments.