The Economic Policy Department within the Ministry of Finance, the Economy and Investment has published the Economic Bulletin which reviews recent developments in the Maltese economy during 2009 and the initial months of 2010. The Bulletin also provides a review of the international economic scenario and outlook.

In the context of an international recessionary environment, the Bulletin notes that the domestic economy in 2009 was affected by the sharp drop in global trade and by the economic downturn in Malta’s main trading partners. However, in line with the initial signs of an international economic recovery during the second half of 2009, there was a gradual recovery in the domestic economy towards the end of the year. The overall decline in real GDP during 2009 reflected a negative contribution from the domestic demand in particular from a drop in investment expenditure, while the external sector contributed positively to GDP growth as the drop in imports more than offset the decline in exports.

Turning to developments in the Balance of Payments, the Bulletin reports a considerable narrowing of the current account deficit, from 5.4 per cent of GDP in 2008 to 3.9 per cent of GDP in 2009. This largely reflected the decline in imports due to the downturn in domestic demand. On the other hand, a higher deficit was registered in the income account whilst a worsening was recorded in net current transfers. Thus, similar to the experience of other countries in the EU, the improvement in the external position is largely cyclical in nature.

At a sectoral level, the Bulletin notes that the manufacturing sector and the tourism industry were particularly hit by the international crisis. Gross value added (GVA) in the manufacturing sector contracted sharply during 2009. The decline in tourist departures was of 8.4 per cent, which is broadly similar to the performance registered by other EU Mediterranean destinations.

The construction industry and the wholesale and retail trade sector also registered a negative performance during 2009, while other emerging service activities showed more resilience to the adverse international economic developments. In fact, an increase in GVA was registered by the financial intermediation services, the recreational, cultural and sporting services (which include remote gaming activities) and the other business services sectors.

In terms of employment, the Bulletin reports that following a relatively buoyant performance in previous years, during the twelve months to October 2009, the full-time gainfully occupied population decreased by 1.2 per cent, with an increase in the unemployment rate from 4.2 per cent to 4.8 per cent. Meanwhile, part-time employment as a primary job recorded an increase of 3.5 per cent during this period.

In its analysis of fiscal developments, the Bulletin observes that as the Government adopted a less restrictive fiscal stance in response to the challenging economic environment, the general Government deficit as a ratio of GDP remained above the 3 per cent benchmark during 2009, at 3.8 per cent of GDP. Meanwhile, the debt ratio increased from 63.7 per cent of GDP in 2008 to 69.1 per cent in 2009.

Regarding the economic outlook, a gradual international economic recovery seems to be underway, although the rate of recovery is taking place at different speeds across countries and regions. Economic growth in most EU Member States is expected to recover and turn positive during 2010. The available indicators for the domestic economy covering the initial months of 2010 are also indicative of an improvement in economic performance. Whilst these recent developments are encouraging, a note of caution is warranted as the global economic outlook remains subject to a number of downside risks.

In particular, the global export scenario is still uncertain and halting the deterioration in the labour market is also a challenge. Furthermore, in view of recent developments in sovereign bond markets, achieving sustainable fiscal positions is expected to become increasingly important in the economic policy agenda of a number of Member States in the Euro Area.

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