I believe it is understandable that drawing an economic forecast in such turbulent and uncertain times is extremely difficult.

On the 19th October, as part of the Budget Speech, Government projected that whilst Malta’s GDP will fall by 7.4% (real terms) in 2020 when compared to 2019, Malta’s GDP will then grow by 5% (real terms) in 2021 when compared to 2020. This basically means that Government is projecting that the total output value of Malta’s economy by the end of 2021 would be at par with that of 2019 i.e. on the basis of circa €13bn. According to Government this projected growth in Malta’s GDP in 2021 is based on a 7.5% growth in investments, 3.7% growth in private consumption, 5.5% growth in exports and a lower 4.5% growth in imports.

Almost 3 weeks later, on the 5th November, the European Commission published its “Autumn Economic Forecast” and with regards Malta’s economy it projected that whilst Malta will register a GDP contraction of 7.25% in 2020 when compared to 2019, the projected growth for 2021 will be of 3%, which is much lower than the 5% projected 3 weeks earlier by Government in the budget speech. So much so, that the European Commission projects that instead of 2021, it will take us until the end of 2022 to reach the same GDP output level that Malta had in 2019, whereby this would be possible as it is being projected that Malta then registers a GDP growth of 6.25% in 2022.

As can be seen below, the European Commission is projecting that in 2021, private consumption will grow by 4.2% (slightly higher than the 3.7% projected by government), investments will grow by 8% (slightly higher than the 7.5% projected by government), whilst exports will grow by 2.3% ( which is drastically lower than the 5.5% growth in exports projected by government).

In fact, the European Commission also places a blanket caveat on its economic projections by stating the following:

“A recovery driven by domestic demand is expected to accelerate from slow GDP growth of 3.0% in 2021 to some 6¼% in 2022, reapproaching its 2019 level. Two factors weigh on the pace of the rebound in Malta: the evolution of the pandemic and the economic effects of the change to less beneficial EU-UK trading relations. The first will likely dictate how quickly the tourism sector may pull through the current crisis, while the latter has a considerable negative impact on the trade balance between the UK and Malta. The new trade relations are expected to have the strongest impact on growth in 2021 and to a lesser extent also in 2022. Consequently, the current account surplus is projected to continue to subside in 2021 before rising again in 2022. Nonetheless, Malta’s economic outlook is closely tied to the economic performance of its main trading partners and their recovery. The uncertainty around the evolution of the pandemic may pose additional downside risks to Malta’s trade balance with the rest of the world, affecting its ability to bounce back from the crisis.”

Interesting that whilst the EU commission is mentioning the possible negative effects of Brexit on Malta’s economy, this was not mentioned in the Budget Speech and it does not seem to be on the radar of the Government’s economic forecast.

My message is that economic forecasting is presently very difficult. In the space of 3 weeks I have shown you the rather big differences in the economic projections done by the Maltese Government and the European Commission. So while it is important to keep yourself informed and read in detail (yes the devil is in the detail) all economic projections, it is certainly the time to hope for the best, but be fully prepared for the worst.