Virus mutations and restrictive health measures could delay economic recovery to 2023, Central Bank says

The Central Bank of Malta has revised its economic projections for 2022 and 2023, with GDP expecting to recoup towards the end of 2022, conditional on a successful vaccine rollout throughout 2021.

According to their projections, Malta’s GDP will grow by 5% in 2021, 5.5% in 2022, and 4.7% in 2023.

A decline in net exports was the main contributor to GDP contraction in 2020, due to a sharp drop in foreign demand, travel restrictions and global supply chain disruptions.

Another negative contributor was domestic demand, with containment measures and elevated levels of uncertainty adversely impacting private consumption and investment. This was only partially mitigated by increased government consumption.

Employment has remained resilient in spite of less-than-desirable economic conditions. Employment growth is projected to reach 2.7% in 2023, and has remained relatively positive throughout 2020.

Inflation is expected to remain low in the coming years. Based on the Harmonised Index of Consumer Prices, annual inflation is set to edge up to 0.9% in 2021, from the 0.8% seen in 2020. By 2023, overall HICP inflation is expected to reach 1.7%.

Naturally, public finances deteriorated sharply in 2020 in part due to slow economic activity and the introduction of COVID-related fiscal support. CBM thus projects that government will record a deficit worth 9.5% of GDP, which will persist throughout 2021 albeit narrowing to 6.6%.

The deficit is expected to fall to 3.9% of GDP by 2023, as economic activity recovers and COVID-related support fades. However, the government debt-toGDP ratio is still projected to rise from 42.4% in 2019 to 60.3% by 2023.

The Bank takes into account a more severe scenario, whereby restrictive health protocols are maintained beyond 2021, the vaccination process turns out to be slower than what is currently projected, and new virus strains become harder to mitigate.

In such a situation, 2019 GDP levels will only be reached in 2023, at which point the debt-to-GDP ratio will rise to 68.2%.