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maltatoday WEDNESDAY 11 APRIL 2018 11 Business Today www.creditinfo.com.mt info@creditinfo.com.mt Tel: 2131 2344 Your Local Partner for Credit Risk Management Solutions Supporting you all the way Central Bank: Worker up-skilling, infrastructural investment needed for continued economic growth Annual Report for 2017 highlights Malta's positive economic outlook, points to challenges caused by stress on infrastructure, reliance on foreign labour Massimo Costa Malta's macroeconomic out- look remains positive, and Gross Domestic Product growth is expected to remain substantial in the coming years. However, the increase in the country's population will likely add additional stress on its infrastructure. The sharp rise in foreign labour could also pose challenges, since such workers are more prone to leave the country and might add an element of fluctuation on Malta's potential output. This emerged from the Central Bank's 2017 Annual Report, presented yesterday by the bank's governor Mario Vella. Vella said that Malta's economic growth was primarily driven by an increase in the exports of goods and services. However, accelerated growth would inevitably create some friction, which may not only be economic, but also include social issues. Aaron Grech, Chief Economist at the Central Bank, highlighted that foreign workers often came to Malta to acquire skills by way of a work experience, and many of them might leave the island after three years or so, no matter what their employers offered them to remain. "Some employers have to train and re-train new staff frequently, but we have to live with this," he said, "Without migrants coming to work here, our economy cannot grow. We only have 2,000 people out of work, and although there is still a pool of local women who haven't entered the labour market, there is otherwise very little potential for labour growth left locally." Creating a society which is able to maintain flexibility and dynamism was crucial, he said. Up-skilling the local workforce and investing in infrastructure in the coming years were also very important, he stressed. Grech said GDP growth was expected to remain strong in the next few years, with more than 6% growth this year, followed by a gradual deceleration to 5% in 2019 and 4% in 2020. "These remain much stronger than the medium term growth rates we had predicted, so the deceleration will be to a much higher 'new normal'," Grech said. Economic participation constraints, in the form of the substantial labour shortages which firms are facing, leading to a moderation in businesses' rate of growth, are behind the deceleration, he emphasised. The Central Bank expects the government to remain in surplus for the next three years, although this is predicted to decline by around 0.5% by 2020, Grech said. However, he said, this figure will likely have to be revised since government expenditure levels were improving more than expected Unemployment – which stood at 3.7% at the end of 2017, the second lowest in the European Union, and tied with Germany for lowest in the euro zone – is predicted to remain relatively low and not exceed 4% by much for the next three years, Grech said. "Malta's economic growth is very job rich – we are seeing a very healthy rise in full-time employment, resulting in historically low unemployment." This was having some impact on local costs, Grech said, leading to an increase in the inflation rate. Inflation has still remained relatively low, however, since Malta imports a lot of its consumer goods and inflation is currently relatively low abroad, leading to low import inflation locally. Added to this, since the country is importing a good portion of its labour, wages and salaries are not rising in the same way as they did when Malta had economic booms in the past, keeping inflation low. Size of core domestic banks as share of GDP less than EU average The size of Malta's banking sector in 2017 stood at 431.5% of GDP, and is comprised of 25 banks, Central Bank deputy governor Oliver Bonello said. This is made up of 206.4% represented by core domestic banks with strong links to Malta's economy, 205.4% by international banks with almost no links to the economy, and 19.7% by non-core banks with few economic links. Therefore, when compared to the average size of the EU banking sector, which is 260% of GDP, Malta's core banking sector is smaller. "Throughout 2017, Malta's banking sector continued to demonstrate resilience and has contributed to economic growth," Bonello said. mcosta@mediatoday.com.mt We are seeing a very healthy rise in full-time employment, resulting in historically low unemployment