Maltese economy to shrink by 2.8% in pandemic year, least decline in the EU

Updated at 7:48pm with government reaction

Malta will endure a contraction in gross domestic product of -2.8%, according to a financial model published by the International Monetary Fund – the smallest impact among eurozone countries.

But the buoyant Maltese economy can be expected to grow by 7% in 2021, as economic activity normalises, one of the highest rates bar the Baltic countries’ projected recovery rates.

According to the IMF’s most recent publication, Malta’s current 4.3% final quarter economic growth in 2019, will be -3.8% in the same quarter in 2020, but then possibly normalising to 9% in the same quarter in 2021.

The global economy is projected to contract sharply by -3 percent in 2020, much worse than during the 2008–09 financial crisis.

If the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound, the global economy is projected to grow by 5.8 percent in 2021 as economic activity normalizes.

But there is extreme uncertainty around the global growth forecast. The economic fallout will be hard to predict, including the extent of the pandemic, and the extent of supply disruptions, shifts in spending patterns and behavioral changes – such as people avoiding shopping malls and public transportation.

Many countries face a multi-layered crisis comprising a health shock, domestic economic disruptions, plummeting external demand, capital flow reversals, and a collapse in commodity prices.

Necessary measures to reduce contagion and protect lives will take a short-term toll on economic activity but should also be seen as an important investment in long-term human and economic health.

“The immediate priority is to contain the fallout from the COVID-19 outbreak, especially by increasing health care expenditures to strengthen the capacity and resources of the health care sector while adopting measures that reduce contagion,” the IMF said.

“Economic policies will also need to cushion the impact of the decline in activity on people, firms, and the financial system; reduce persistent scarring effects from the unavoidable severe slowdown; and ensure that the economic recovery can begin quickly once the pandemic fades.”

The IMF said policymakers have to implement substantial targeted fiscal, monetary, and financial market measures to support affected households and businesses. “Such actions will help maintain economic relationships throughout the shutdown and are essential to enable activity to gradually normalize once the pandemic abates and containment measures are lifted.”

It said the fiscal response in affected countries has been swift and sizable in many advanced economies such as Australia, France, Germany, Italy, Japan, Spain, the United Kingdom, and the United States. “Fiscal measures will need to be scaled up if the stoppages to economic activity are persistent, or the pickup in activity as restrictions are lifted is too weak. Economies facing financing constraints to combat the pandemic and its effects may require external support.”

The significant actions of large central banks in recent weeks include monetary stimulus and liquidity facilities to reduce systemic stress. The IMF said supervisors should also encourage banks to renegotiate loans to distressed households and while maintaining a transparent assessment of credit risk.

“Countries urgently need to work together to slow the spread of the virus and to develop a vaccine and therapies to counter the disease. Until such medical interventions become available, no country is safe from the pandemic, including a recurrence after the initial wave subsides, as long as transmission occurs elsewhere,” the IMF said.

Malta will suffer the least economic impact of any EU country - government

In a reaction to the IMF forecast, the Economy Ministry noted that Malta would be suffering the least COVID-19 economic impact in the EU.

It highlighted that while the average GDP contraction in the eurozone will be of 7.5%, Malta, with a negative growth of 2.8%, would only experience a third of the impact.

Neighbouring countries would be dealt a much harder blow, it said, with Italy's economy expected to shrink by over 9%, and Spain's by 8%. Germany economy will also experience a -7% GDP growth.

Malta's employment figures also compare favourably, the ministry said, with the unemployment rate expected to be at 5% compared to the 7.3% the island experienced in 2009 during the economic recession.

Economy Minister Silvio Schembri said that in the financial aid packages unveiled in the past weeks had shown how the government kept functioning and was able to provide assistance, despite the pressure and problems ccaused by the economy.

He emphasised that the country would return to having "a economic, institutional and and social strengthening which is without precedent" once the pandemic was over.