Updated | EC forecast lauds robust growth, warns against delays in LNG plant

Adds reaction by PN

The European Commission’s outlook for the Maltese economy is suggesting a robust growth for the rest of 2014, with household consumption and the new Delimara power plant investment, expanding economic activity.

But the EC’s spring forecast also says that “delays in the planned construction of the new power plant pose a downside risk to growth projections”, referring to the effect that the reductions in energy bills, which started in March, will have in increasing disposable income.

Economic activity in Malta was said to have “surprised positively in 2013” with a real GDP growth of 2.4%.

This growth was based on the significant accumulation of inventories, and a pick-up in private consumption. At the same time exports were weak, giving a negative contribution to economic growth for the first time since 2006.

Real GDP growth is forecast to moderate slightly, reaching 2.3% in 2014, and 2.1% in 20145.

The new power plant at Delimara, which will result in intensive import activity, will mean experts will be greatly offset.

Positive labour market conditions and the reduction in energy bills will push household consumption in 2014 and 2015 as more disposable income is left in people’s pockets.

Deficit and debt

The EC credited strong economic growth and the government’s discretionary measures with the narrowing of Malta’s deficit to 2.8% in 2013, from 3.3% a year before.

In 2014, the government deficit is expected to improve further to 2.5% of GDP, with revenues boosted by excise duties and the Individual Investor Programme. Spending on public sector recruitment and other cuts will continue throughout the year.

The structural deficit is projected to narrow only marginally in 2014, after improving by 1 percentage point of GDP in 2013, and remain unchanged in 2015.

Debt-to-GDP ratio increased to 73.0% in 2013, but is expected to decrease by some 2 percentage points over 2014-15, following the repayment of a loan from Air Malta and the partial clearance of some tax arrears from Enemalta.

The EC also said that “higher than budgeted” disbursements related to the car VAT refund scheme could pose risks to public finance developments, while the settlement of all the arrears by Enemalta would further decrease the debt.

In a reaction, the Nationalist Party said the government should not ignore the Commission’s warnings of the economic development.

“Even though the country’s economy is stable, the report lists a number of sectors that are of concern, including its forecast that less jobs will be created during this year,” the PN said.

It added that while the rate of unemployment is expected to remain unchanged, the Commission forecasts a drop in job creation from 3.1% to 2.1%.

“In other words, not enough jobs will be created and those seeking employment will find it harder,” the party said.

It went on to add that the taxpayer will fork out money to pay for the jobs “the Prime Minister is giving to the core”.

The PN also commented that the European Commission was basing its forecast of economic growth based on domestic consumption “contrasting statistics issued by Eurostat reporting a drop in retail trade”.