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A round-up of the Maltese economic landscape: Quarter 1| 2022
Before 24th February 2022…
The COVID-19 pandemic continued to cause stress to the global and local economy throughout much of 2021, despite rebounds at different points throughout the year. Malta’s GDP grew by 11.3% in 2021, over the low 2020 levels, while some businesses continued to receive aid, particularly through the wage supplement scheme (c. €653 million by 2021, impacting around 105,000 employees). At the same time, supply chain issues started to unravel around summer 2021, leading Maltese businesses to start bearing higher freight, local transport and industrial operational costs, and delays[i]. The CBM highlighted how Maltese firms were also facing labour shortages, which could have potentially slowed the pace of economic recovery during last year, compared to pre-COVID times[ii].
Current outlook
As economies were keen to jump start into the next phase of the economic recovery, the Russian-Ukrainian conflict expanded significantly in February 2022. This has already caused initial shortages of basic products and spiked energy and core inflation. As a result, inflation, on a global, as well as a local level, is projected to accelerate in 2022, due to the intensification of import prices of several food items, and larger global supply-chain disruptions that have been triggered. On another note, while still on the FATF grey list, Malta eagerly awaits replies provided and on-site visit discussions as an opportunity for verification of its action plan and reforms. Looking ahead, local tourism remains dependent on the global direction and health of the industry, which remains conditioned by the lifting of travelling restrictions but is also expected to normalize in 2022. Against the above, Malta’s GDP is expected to register a growth of 6% in 2022[iii].
What to look out for ...
Green [xii]
The European Green Deal aims for no net emissions of greenhouse gases (GHGs) by 2050, and economic growth decoupled from resource use, with no person and no place left behind. As part of this Deal, the EC has adopted the “Fit for 55” package to align with the EU’s target of reducing net GHG emissions by at least 55% by 2030. The proposed package includes revising the EU ETS, revising Regulations and Directives on renewable energy, alternative fuels infrastructure, and energy taxes.
To help reach the above objectives, the EU Taxonomy has been issued and is being developed further. Large financial and non-financial companies that fall under the scope of the Non-Financial Reporting Directive have started to disclose the extent their activities meet the criteria set out in the EU Taxonomy.
Digital[xiii]
The Digital Agenda for Europe 2020-2030 establishes 4 targets, one of which targets a 75% share of EU business to use cloud computing services, big data, and AI by 2030. Also, more than 90% of EU SMEs are targeted to reach at least a basic level of digital intensity, whilst the number of EU unicorns (IPO or valuation of $1 billion+) are set to double.
Demography[xiv]
Malta’s population stands at c. 516,000 persons, as at November 2021 (-0.02% over 2020). The ageing cohort (65 years+) makes up around 20% of this figure. From a labour market perspective, foreign nationals doubled over the period 2016-2019, with Third Country Nationals (TCNs) making up two-thirds of this increase.
Global Political tensions[xv]
The Russian invasion on Ukraine is impacting the global economy through additional inflationary pressure (mostly due to spiking energy prices) and new supply chain challenges (e.g. prolonged chip shortages). Russia is also a main producer and exporter of some key materials as steel, aluminium and nickel. Markets are on edge, with stocks swinging and uncertainty looming over big and small investors. Current financial market volatility is also likely to affect European insurers.
Commodity Prices[xvi]
Price of oil is expected to increase by 39% in 2022, natural gas by 79%, wheat by 30%, and aluminium by 23%. Palladium (metal), to-date, has increased by 25%.
EY Malta - Economic Advisory Services
EY’s Economic advisory services provides a full suite of economic services, helping both public and private sector clients understand the current and future environments they operate in, and facilitating scenario planning and decision-making. Our services include:
- Cost benefit analysis and project appraisals
- Economic impact analysis
- Regulatory and policy economics
- Consumer demand analysis
- Urban economics
- Socio-economic and regional development
- Market structure and competition
- Modelling and forecasting
Contact:
Chris Meilak
Associate Partner
Valuation, Modelling and Economics
chris.meilak@mt.ey.com
Orlanda Grech
Manager
Valuation, Modelling and Economics
orlanda.grech@mt.ey.com
References
[i] Malta Today (2021), Scary spike in business costs is raising serious concerns for 2022.
[ii] Central Bank of Malta (2021), Outlook for the Maltese Economy 2021:4
[iii] Central Bank of Malta (2022), Outlook for the Maltese Economy 2022:1
[iv] National Statistics Office (2022), Gross Domestic Product: 2021.
[v] National Statistics Office (2022), Gross Domestic Product: 2021.
[vi] National Statistics Office (2022), Inbound Tourism: December 2021.
[vii] Malta Today (2021), Miriam Dalli will not rule out wage supplement scheme extension.
[viii] National Statistics Offices (2022), Government Finance Data: January-December 2021.
[ix] National Statistics Offices (2022), Government Finance Data: February 2022.
[x] National Statistics Office (2022), Retail Price Index (RPI): February 2022; National Statistics Office (2022), Harmonised index of Consumer Prices: February 2022.
[xi] National Statistics Office (2022), Unemployment Rate: February 2022.
[xii] European Commission (2022), A European Green Deal; European Commission (2022), EU Taxonomy for sustainable activities; European Commission (2021), FAQ: What is the EU Taxonomy and how will it work in practice?; European Council (2022), Fit for 55.
[xiii] European Parliament (2022), Fact Sheets on the European Union – Digital Agenda for Europe.
[xiv] National Statistics Office (2022), Census of Population and Housing 2021: Status Report.; The Malta Chamber (2021), Third Country Nationals in the Local Labour Market; National Statistics Office (2021), World Population Day 11 July 2021
[xv] Oxford Economics (2022), Motor Vehicles: Russia-Ukraine wat impacts add to chip shortages woes – Quarterly Industry Forecast; Oxford Economics (2022), Global: The economic effects of Russia’s war on Ukraine – Research Briefing; Oxford Economics (2022), Global: The costs to world trade from Russia’s war on Ukraine – Research Briefing; Oxford Economics (2022), Global: War and supply chain shocks dampen economic outlook – Research Briefing; Oxford Economics (2022), Food, beverages & other consumer goods: Russia-Ukraine war adds to inflationary pressure; Oxford Economics (2022), Weekly Economic Briefing | Eurozone, War in Ukraine will hit Europe’s economy; Bloomberg Wealth (2022), What Ukraine-Russia Tensions Mean for Stocks and Investor Portfolios.
[xvi] Oxford Economics, Database (March 2022); Malta Today (2022), Russia-Ukraine tensions may tighten commodity markets; The Economist (2022), War in Ukraine will cripple global food markets; Macrotrends (2022), Palladium Prices on 24th March 2022
