Download EY Eurozone Forecast for Malta: Spring 2015

Eurozone
EY Eurozone Forecast
March 2015
Austria
Belgium
Cyprus
Estonia
Finland
France
Germany
Greece
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Portugal
Slovakia
Slovenia
Spain
Outlook for Malta
Lower energy costs to
fuel consumer spending in 2015
Finland
Estonia
Latvia
Lithuania
Ireland
Netherlands
Germany
Belgium
Luxembourg
Slovakia
Austria
France
Slovenia
Italy
Portugal
Spain
Greece
Malta
Cyprus
Published in collaboration with
Highlights
• Household spending rose steadily through
2014, aided by lower electricity prices.
In March this year, charges for businesses
are expected to be reduced, and both
households and businesses will benefit
from lower oil prices, which will possibly
give scope for more fuel price cuts. We now
expect inflation to average just 0.6% in
2015. As a result, consumer spending will
grow by at least 2% both this year and next,
helped by lower unemployment (pushed by
an improved female participation rate) and
positive real wage growth.
• Malta is a substantial fuel importer, and
2.3%
lower oil prices will ease the import bill.
Goods exports fell last year, but firmer
activity in the Eurozone should boost
trade this year and encourage stronger
manufacturing output. Strong services
exports should also support the current
account surplus, which we now expect to
remain above 2% of GDP in 2015. Tourist
arrivals rose by 6.8% in 2014 and should
continue to grow robustly this year, helped
by faster EU growth. Online gaming is also
growing strongly. Around 10% of Malta’s
GDP now comes from gaming.
• We expect the fiscal deficit to narrow to
2% of GDP in 2015 as revenues (up almost
13% in January-November 2014) remain
strong. But government debt has been
rising in recent years, some of which has
funded the recent strength in capital
spending. High repayments may slightly
constrain the Government’s policy
flexibility, but we expect the debt burden
to ease from 69% of GDP now to under
64% in 2019.
Unemployment
2015
estimate that GDP growth was 3.4% in
2014. Low interest rates are encouraging
higher investment, and a cable was
completed last year connecting Malta to
the mainland European energy network.
Investment should continue to grow
strongly in 2015. The construction of a
large liquefied natural gas (LNG) plant is
also under way. We expect GDP growth of
2.7% in 2015 and 2.3% in 2016.
GDP growth
5.
7%
Consumer prices
2015
• After a stronger-than-expected Q3, we now
2.
7%
2016
2015
GDP growth
0.
6%
EY Eurozone Forecast March 2015 | Malta
1
Lower energy costs to fuel consumer spending in 2015
GDP growth for 2014 upgraded on
strong domestic activity …
After a strong Q3, we estimate GDP growth
at 3.4% for 2014. Investment grew by
around 5% on the year in both Q2 and Q3
last year, supported by the low interest
rate environment and boosted by the
construction of a cable connecting Malta
to the mainland European energy network.
Private spending also has solid momentum,
growing by some 2.5%–3% on the year in
the first three quarters of 2014, up from
1.7% in 2013. Growth has been aided by
lower electricity costs, which were reduced
in April 2014. Lower unemployment also
supported 2014 growth, with the jobless
rate dropping to 5.8% from 6.4% in 2013.
This supported steady, if fairly modest,
growth in wages and salaries.
After the stronger-than-expected outturn
in 2014, we forecast that growth will slow
a little to 2.7% in 2015 and 2.3% in 2016.
Domestic activity will remain solid, supported
by expansionary fiscal policy, the firm labor
market and lower fuel costs — and exports of
services should remain strong.
… and lower energy costs will boost
spending growth this year
We expect investment to continue growing
strongly in 2015–16 because a large LNG
plant is to be constructed and the existing
power plant is to be converted to LNG.
Lower fuel costs will also help. We now
expect the oil price to average just US$55 a
barrel in 2015, benefiting both households
and businesses. Indeed, energy carries a
weight of nearly a third in the producer
price index. The index fell by 2.5% in
2014 and may drop even more in 2015.
Consumer price inflation slowed to 0.4%
in December 2014, and we expect it to
average just 0.6% this year. However, robust
services activity and the expansionary
fiscal stance should keep non-energy prices
growing at a reasonable pace. Indeed, core
prices, excluding food and energy, were still
1.4% up on the year in December, compared
with 0.8% in the Eurozone. The firm labor
market, with services employment rising
strongly, should support steady growth in
real wages, supporting consumer spending
of at least 2% in 2015 and 2016.
Table 1
Malta (annual percentage changes unless specified)
GDP
Private consumption
Fixed investment
2014
2015
2016
2017
2018
2019
3.4
2.7
2.3
2.0
1.8
1.8
2.3
2.3
2.0
1.9
1.8
1.8
5.1
3.0
2.7
2.5
2.3
2.2
–1.6
–0.8
–0.1
0.4
0.7
0.9
Government consumption
5.8
3.0
2.0
1.6
1.7
1.6
Exports of goods and services
0.5
2.5
2.9
2.9
2.8
2.8
Imports of goods and services
Stockbuilding (% of GDP)
–0.7
3.0
3.3
3.2
3.1
3.0
Consumer prices
0.8
0.6
1.9
2.3
2.3
2.3
Unemployment rate (level)
5.8
5.7
5.6
5.6
5.6
5.6
Current account balance (% of GDP)
0.2
2.3
0.9
0.9
0.3
0.7
Government budget (% of GDP)
–2.1
–2.0
–1.7
–1.4
–1.2
–1.0
Government debt (% of GDP)
69.5
69.4
68.3
66.8
65.3
63.7
ECB main refinancing rate (%)
Euro effective exchange rate (1995 = 100)
Exchange rate (US$ per €)
Source: Oxford Economics.
2
EY Eurozone Forecast March 2015 | Malta
0.1
0.1
0.1
0.1
0.1
0.3
123.6
108.6
104.7
105.4
106.6
108.0
1.33
1.07
1.01
1.01
1.02
1.04
The lower oil bill will cut imports and boost the current
account surplus
Almost 40% of Malta’s 2013 goods imports were mineral fuels,
lubricants and related materials. As a result, the lower oil price
will substantially reduce the import bill. We now expect the current
account surplus to remain above 2% of GDP in 2015. Goods exports
fell last year, but firmer activity in the rest of the Eurozone and the
weaker euro should boost exports this year, in turn encouraging
stronger manufacturing output. Further, in January 2015, the
European Central Bank (ECB) announced it would expand its
balance sheet by over €1t over a two-year period, and we expect
this to lead to lower Eurozone bond yields and push the euro down
further. Around 24% of Malta’s exports went to the rest of the
Eurozone in 2013 and, prompted by stronger external demand,
we expect industrial output to grow by 0.9% in 2015 after
declines in 2013 and 2014.
robustly in 2015–19, helped by stronger growth across the EU. The
strength also reflects efforts in recent years to improve the quality
of the tourism product, and to attract tourists outside the
traditional summer peak season and from a wider range of
countries. In the longer term, investment into other cultural and
creative industries is expected to boost tourism, particularly as
Valletta will be one of the two European Capitals of Culture in 2018.
Online gaming is also growing strongly, and around 10% of Malta’s
GDP now comes from gaming. The number of licenses issued to
gaming firms rose by 25% last year, and Malta’s “SmartCity”, which
first opened in 2010, is due to be fully completed by 2021.
SmartCity is being developed as a hub for gaming firms.
Strong revenue performance has helped narrow fiscal
deficit, but debt still high
Strong services exports should also support the current account
surplus. Employment in the service sector has grown very robustly
in recent years and now accounts for almost 80% of the workforce.
Tourist arrivals rose by 6.8% in 2014 and should continue to grow
We expect the fiscal deficit to narrow to 2% of GDP in 2015, as
revenues (which rose by almost 13% in January-November 2014)
continue to grow strongly. Government debt has been rising in
recent years, although this has funded the recent strength in capital
spending. Indeed, debt interest payments accounted for almost 10%
Figure 1
Figure 2
Real GDP growth
Inflation
% year
% year
5
5
Forecast
4
Forecast
Malta
Malta
4
3
2
3
1
2
0
–1
1
–2
–3
0
Eurozone
–4
Eurozone
–1
–5
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
Source: Oxford Economics.
1992
1995
1998
2001
2004
2007
2010
2013
2016
2019
Source: Oxford Economics; World Bank.
Table 2
Forecast for Malta by sector (annual percentage changes in gross added value)
GDP
2014
2015
2016
2017
2018
2019
3.4
2.7
2.3
2.0
1.8
1.8
Manufacturing
1.3
1.4
1.5
1.5
1.2
1.2
Agriculture
1.4
1.4
0.9
0.7
0.5
0.5
Construction
2.4
1.9
1.9
1.8
2.0
2.0
Utilities
3.7
2.7
2.1
1.6
1.2
1.2
Trade
1.9
1.7
1.5
1.1
0.9
0.8
Financial and business services
4.6
3.7
3.2
2.7
2.4
2.4
Communications
6.1
5.0
4.3
3.8
3.4
3.4
Non-market services
4.3
2.6
2.2
1.9
1.9
1.8
Source: Oxford Economics.
EY Eurozone Forecast March 2015 | Malta
3
Lower energy costs to fuel consumer spending in 2015
of total government spending in 2013. This burden slightly reduces
flexibility over policy, limiting the scope to increase spending in
other areas. However, we expect the debt burden to ease gradually
in the coming years, from 69% of GDP now to below 64% by 2019.
Longer-term prospects would benefit from reforms to
raise competitiveness
Malta’s expertise in tourism and financial services is well established
and will underpin steady longer-term growth. However, as a
small and very open economy, it is crucial that Malta maintains
competitiveness in these sectors and continues to introduce
reforms in pensions and health care. According to Eurostat, Malta’s
average hourly labor costs of €12.8 in 2013 are only around 60% of
those in Spain (€21.1). But real labor productivity per person
employed rose by just 1.2% between 2005 and Q2 2014, compared
with almost 14% in Spain over the same period. In the 2014 budget,
wages were increased by €3.49 a week (this is commonly known
as the cost of living adjustment), but in the 2015 budget they
will be increased by just €0.58 a week. However, an increasing
number of employers believe that wage rises should be linked to
productivity rather than inflation, because this would encourage
productivity gains.
The outlook is reasonably bright, and the risks
are balanced
We expect Malta’s GDP to grow by an average of about 1.9% a year in
2017–19, underpinned by solid domestic activity, expansionary fiscal
and monetary policy and strong services exports. The strength of the
services sector and the healthy public finances should mean that
Malta is less at risk of deflation than other Eurozone members
(although it would quickly suffer if the rest of the Eurozone were to
experience a prolonged spell of deflation). But higher productivity
must be encouraged, to ensure Malta is not left behind by some
Eurozone countries in terms of competitiveness. There is also a risk
of delay to some investment projects. Although, encouraged by the
strength of investment in 2014, this risk is low. And the risks are
not all on the downside. With the size of the ECB’s quantitative
easing program surprising on the upside, the boost to growth in
Malta may be larger than expected. At the same time, lower oil
prices and lower interest rates are boosting consumers’ spending
power and business confidence.
Figure 3
Figure 4
Private consumption and total fixed investment
Unemployment rate
% year
%
40
13
Forecast
Forecast
12
30
Private consumption
20
11
10
Eurozone
10
9
0
8
–10
7
Total fixed investment
–20
–30
5
1997
2000
2003
2006
2009
Source: Oxford Economics.
4
Malta
6
EY Eurozone Forecast March 2015 | Malta
2012
2015
2018
2001
2003
2005
Source: Oxford Economics.
2007
2009
2011
2013
2015
2017
2019
Macroeconomic data and analysis at your fingertips
Learn more about the EY Eurozone
Forecast at ey.com/eurozone:
• Download the latest EY Eurozone Forecast and
individual forecasts for the 19 member states.
• Use our dynamic Eurochart to compare country
data for the next five years.
Eurozone Forecast – December 2014
Trend analysis
You can select multiple countries to display on the chart.
• Use the trend analysis tool to compare forecasts
for specific economic indicators across the
19 Eurozone nations.
Country
GDP
Germany
Government Debt
France
Spain
Luxembourg
Slovenia
0.4
Fixed Investment
4.0
0.2
-2.3
Current Account Balance
10
Ireland
Slovakia
40
-1.5
7.2
Finland
Portugal
1.4
0.8
2.0
0.0
-2.0
20 -0.8-0.4
-4.0
-3.2
-0.6-0.4-0.10.10.4
-1.2
0.4
2.0
0.8-1.20.4
0.8
4.0
1.3
6.0
2.8
1.6
1.7
1.6
8.0
-0.6
Belgium
Greece
1.6
60
0.2
2.0
2.8
80
Government Budget
Netherlands
Austria
Private Consumption
4.0
100
Italy
4.4
10
2.4
Unemployment rate
Stockbuilding
1.6
3.2
4.0
Consumer Prices
4.4
Government Consumption
7.6
7.2
10
2.2
5.2
10
Exports of Goods and Services
Imports of Goods and Services
C
Clear selection
Select a year to compare:
2013
2014
2015
2016
2017
2018
EY Eurozone Forecast: outlook for
financial services — Winter 2014
• The EY Eurozone Forecast: outlook for
financial services explores the implications
of the latest Eurozone economic forecasts
for banks, asset managers and insurers.
• Our latest forecast sees improving GDP,
growth in consumer spending and falling
unemployment across the Eurozone.
• Learn more and download the report at
ey.com/fseurozone.
EY’s attractiveness survey:
Europe 2014
EY Rapid-Growth Markets
Forecast: July 2014
• EY’s Rapid-Growth Markets Forecast
provides analysis of 25 emerging
economies.
• Our latest report explores the role of
urbanization in the rapid-growth markets.
• Learn more and download the report at
ey.com/rapidgrowth.
• EY’s attractiveness surveys are
annual reports that examine the
attractiveness of selected nations
and regions to foreign investors.
• EY’s attractiveness survey: Europe
2014 finds that Europe remains
the world’s top destination for
foreign direct investment.
• Learn more and download the
report at ey.com/attractiveness.
EY | Assurance | Tax | Transactions | Advisory
About EY
EY is a global leader in assurance, tax, transaction and advisory services.
The insights and quality services we deliver help build trust and confidence
in the capital markets and in economies the world over. We develop
outstanding leaders who team to deliver on our promises to all of our
stakeholders. In so doing, we play a critical role in building a better
working world for our people, for our clients and for our communities.
EY refers to the global organization, and may refer to one or more, of
the member firms of Ernst & Young Global Limited, each of which is a
separate legal entity. Ernst & Young Global Limited, a UK company limited
by guarantee, does not provide services to clients. For more information
about our organization, please visit ey.com.
© 2015 EYGM Limited.
All Rights Reserved.
EYG no. AU2984
BMC Agency
GA 0342_01365
ED None
In line with EY’s commitment to minimize its impact on the environment,
this document has been printed on paper with a high recycled content.
This material has been prepared for general informational purposes only and is not intended
to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors
for specific advice.
ey.com
About Oxford Economics
Oxford Economics was founded in 1981 to provide independent
forecasting and analysis tailored to the needs of economists and planners
in government and business. It is now one of the world’s leading providers
of economic analysis, advice and models, with over 850 clients including
international organizations, government departments and central
banks around the world, and a large number of multinational blue-chip
companies across the whole industrial spectrum.
Oxford Economics commands a high degree of professional and technical
expertise, both in its own staff of over 150, including 90 economists,
based in Oxford, London, Belfast, Paris, the UAE, Singapore, New York and
Philadelphia, and through its close links with Oxford University and a range
of partner institutions in Europe and the US. Oxford Economics’ services
include forecasting for 200 countries, 100 sectors, and 3,000 cities and
sub-regions in Europe and Asia; economic impact assessments; policy
analysis; and work on the economics of energy and sustainability.
The forecasts presented in this report are based on information obtained from public sources
that we consider to be reliable but we assume no liability for their completeness or accuracy.
The analysis presented in this report is for information purposes only and Oxford Economics does
not warrant that its forecasts, projections, advice and/or recommendations will be accurate or
achievable. Oxford Economics will not be liable for the contents of any of the foregoing or for the
reliance by readers on any of the foregoing.