EU’s Updated Economic Outlook

The EU Commission has today just issued it’s updated economic forecast. Overall the EU economic forecast is that we should be bottoming out in 2023, with an outlook to return to overall economic growth across the EU in 2024.

On a general perspective accross the EU, notwithstanding a projected contraction of GDP in the fourth quarter 2022, the momentum from 2021 and strong growth in the first half of 2022 are set to lift real GDP growth, accross the EU, in 2022 as a whole to 3.3%. The contraction of economic activity is set to continue in the first quarter of next year. The EU and euro area, and most Member States, are therefore expected to experience a technical recession this winter. Growth would return in spring, as inflation progressively relaxes its grip on the economy. However, with powerful headwinds still holding back demand, the EU economy is set to manage only lacklustre growth. For 2023 as a whole, this forecast projects real GDP growth in both the EU and euro area at 0.3%.

Such a forecast is based on the following assumptions:-

  • That due to the near absence of Russian gas supply and infrastructure constraints to further expand LNG imports, will basically mean that even up to 2024, the EU faces the risks of gas shortages and high energy prices.
  • That faced with persistent inflationary pressures, monetary policy is expected to continue on its tightening path. In line with market expectations, the ECB is assumed to keep hiking its policy rate throughout 2023.
  • Notwithstanding the support from fiscal measures, the large loss in households’ real disposable income is set to continue in the coming quarters.
  • Higher input and labour costs, coupled with rising borrowing costs, are likely to weigh down business’s financial capacity, whilst the general contraction in demand is likely to soften the pressure on capital utilisation,
  • The EU economy is bolstered by the strongest labour market in decades. Unemployment rates are at record low and participation and employment rates at record high. What is more, vacancy rates and reported labour shortages remain extremely elevated, though they have started declining. Although with a lag, labour demand is set to react to the slowing of economic activity, but vacancy rates and labour shortages are expected to fall significantly before employment contracts

The assumptions underpinning the forecast are subject to high risks. The potential for further disruptions unleashed by invasion of Ukraine is far from exhausted. A large degree depends on the economic adjustment to the two rapid succession of extreme shocks. So this forecast relies to an exceptional degree on assumptions that could be effected from adverse developments on the gas market and the risk of crippling shortages, especially in the winter of 2023/2024. Beyond gas, the EU remains directly and indirectly exposed to renewed shocks to commodity markets reverberating from geopolitical tensions. The formation of a wage-price spiral that would entrench high inflation and potentially disorderly adjustments on financial markets to the new high interest rate environment also remain important risk factors.


The Maltese economy is expected to grow strongly by 5.7% in 2022, driven by domestic demand and export of services, including tourism. Growth is forecast to moderate to 2.8% in 2023, as the supporting growth momentum of exported services fades and the impact of higher prices reduces household purchasing power. As the government remains committed to keeping energy prices stable also for 2023 and 2024, the general government deficit is projected to be at 6% in 2022, among the highest in the EU, only gradually decreasing in 2023 and 2024. Public debt remains close to 60% of GDP.

Whilst, the tourism sector in Malta is showing a robust performance in 2022 things could change in 2023. In the current volatile environment, real GDP growth is forecast to moderate markedly to 2.8% in 2023 as the positive contribution of net exports (including tourism) diminishes and domestic demand growth slows down due to weakening private consumption. This is lower than what Government was forecasting for 2023, whereby as outlined in the recent Budget Speech government projected a real GDP growth of 3.5% in 2023. Having said so, as seen above, Malta’s expected economic growth in 2023 is the 2nd highest, just behind Ireland and multiple times better than the EU’s average expected economic growth.

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