Analysis by a country in one year. During

Analysis of the Maltese Economy in 2016

Gross Domestic Product

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GDP is short for gross domestic
product. This calculates a country’s economy by seeing the goods and services
produced by a country in one year.

During the last quarter of 2016,
real GDP rose by 5.1% on a year earlier, up from 4.5% in the September quarter.
The latest expansion was driven by net exports (see Table 2.1). On the other
hand, domestic demand acted as a drag on real GDP growth, as higher private
consumption and investment were offset by falls in government expenditure and
changes in inventories. Exports of goods and services grew at a faster pace
over the review period, increasing by 8.6% on a year earlier.

However, imports of goods and
services also rose, by 3.7%, after contracting in the previous quarter. As
exports outpaced imports, net exports pushed up annual real GDP growth by 7.1
percentage points. The positive contribution of net exports reflected trade in
services. Following a rise of 1.3% in the third quarter, private consumption
growth accelerated to 3.9% in the following quarter, and contributed 1.9
percentage points to real GDP growth. In nominal terms, consumption expenditure
rose across most categories, with the exception of clothing and footwear, as
well as furnishing and household equipment. After having contracted in two
consecutive quarters, growth in gross fixed capital formation resumed. In the
last quarter of 2016, investment increased by 2.4% on an annual basis and contributed
half a percentage point to economic growth. The return to positive investment
growth partly reflected the timing of outlays in the energy and aviation
sector, which was mirrored in a rebound in capital outlays on machinery and
transport equipment. At the same time investment in dwellings increased at a
faster pace compared with the third quarter.

These increases offset falls in
investment in non-residential construction and in expenditure related to
cultivated biological resources. Nominal data show that the increase in
investment in the quarter under review emanated totally from the private
sector. In contrast, government investment declined on an annual basis
following an exceptional level of expenditure a year earlier, when projects
part-financed by the EU 2007-2013 programme reached completion.

Government consumption contracted
further in the quarter under review, falling by 15.7% on the same period of
2015 and shedding 3.0 percentage points from real GDP growth. In nominal terms,
the two principal components of government consumption moved in opposite
directions, with an increase in compensation of employees being offset by lower
intermediate consumption.

Additionally, sales, which are
netted against expenditure in the national accounts, increased significantly
during the review period. This increase in sales was largely propelled by
inflows under the Individual Investor Programme (IIP).  Table 2.1 below shows the GDP changes between
Q4 2015 and Q4 2016:

 

 

 

 

 

Percentage point contributions

Q4
2015

Q1
2016

Q2
2016

Q3
2016

Q42016

Private final consumption expenditure

3.0

3.5

1.7

0.7

1.9

Government final consumption expenditure

1.4

1.1

0.5

-0.6

-3.0

Gross fixed capital formation

6.4

3.7

0.0

-4.8

0.5

Changes in inventories

-2.4

0.7

1.4

-1.1

-1.4

Domestic
demand

8.5

9.0

3.7

-6.0

-2.0

Exports of goods and services

8.9

7.5

-0.2

3.7

12.0

Imports of goods and services

-10.5

-10.3

0.9

6.8

-5.0

Net
exports

-1.6

-2.8

0.7

10.5

7.1

Gross
domestic product

6.9

6.3

4.4

4.5

5.1

Table 2.1

Source: CBM Quarterly
review Q2 2017

Unemployment

(mention that Malta has the
lowest unemployment rate in the EU)

Upbeat labour market conditions
carried on in the last quarter of the year, reflecting government efforts to
increase labour market participation and job matching in the context of a buoyant
economy. These measures, supported a further expansion in employment and a
continued decline in the unemployment rate. The favourable trend in the unemployment
rate is illustrated in Table 2.2 below:

 

Q4
2015

Q1
2016

Q2
2016

Q3
2016

Q42016

Labour Force

197,182

196,869

201,206

203,763

201,329

Employed

186,897

187,171

191,384

193,893

192,807

Full-time

158,176

160,160

162,641

164,904

164,741

Part-time

  
28,721

 
27,011

 
28,743

 
28,989

 
28,066

Unemployed

10,285

   
9,698

   
9,822

   
9,870

   
8,522

Unemployment rate (%)

5.2

4.9

4.9

4.8

4.2

Table 2.2

Source: CBM
Quarterly review Q2 2017

 

Inflation

The annual inflation rate as
measured by the Harmonised Index of Consumer Prices (HICP) increased marginally
to 1.0% in December 2016, from 0.9% in September, driven by faster growth in
prices of unprocessed food. Inflation in Malta remained low from a historical
perspective and for the first time in over two years was also below that
registered in the euro area. As regards measures of competitiveness, Malta’s
Harmonised Competitiveness Indicators (HCI) fell during the fourth quarter,
suggesting an improvement in price competitiveness.

Table 2.3 below shows the
inflation rates by month and year during 2016:

 

2016

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Annual Rate (%)

0.8

1.0

1.0

0.8

1.0

1.0

0.9

1.0

0.9

0.5

0.8

1.0

12-month Moving Average rate (%)
 

1.2

1.2

1.3

1.2

1.2

1.2

1.1

1.1

1.1

1.0

0.9

0.9

Table 2.3

Source: NSO
News Release 18 January 2017

 

Projections: 2017-2019

Economic activity in Malta is
expected to remain robust over the projection horizon, supported by both demand
and supply factors. In particular, the energy reforms that have taken place in
recent years, new investment projects, increased labour market participation
and robust services exports are the primary drivers supporting the economic
expansion. Real GDP growth is projected at 4.4% in 2017. It is then expected to
decelerate to 4.0% in 2018, and 3.5% in 2019.

As a result, the labour market is
projected to remain tight, with the unemployment rate falling further to 4.5%
in 2017, before picking up slightly to 5.1% by 2019.

Consumer price inflation is
expected to pick up this year as the contribution of energy prices is envisaged
to turn positive. Annual inflation, based on the Harmonised Index of Consumer
Prices (HICP), should rise from 0.9% in 2016 to 1.4% in 2017. It is then
projected to trend up to 1.8% by 2019, reflecting a pick-up in international
commodity prices and domestic cost pressures.

In terms of public finances, the
general government balance is expected to remain in surplus between 2017 and
2019. Meanwhile the debt-to-GDP ratio is projected to fall below 50%.

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