Ratings agency Fitch has confirmed its A+ rating for Malta’s economy.
The agency said in a review the ratings reflect the country’s high national income per capita compared with the ‘A’ median, robust economic growth, a large net external creditor position and s trong governance indicators. Unemployment is low compared with ‘A’ rated peers, declining to an estimated four per cent in 2017 from 4.7 per cent in 2016 and household net worth is high.
However, Fitch noted that Malta’s ratings are constrained by the small and highly open nature of its economy, which makes it vulnerable to external developments and its high, albeit declining, level of contingent liabilities and outsized banking sector relative to GDP.
Real GDP grew at a robust pace in Q3 of 2017 at 7.2 per cent and growth is estimated to reach 7 per cent for the whole year, boosted by a strong net trade contribution.
Economic growth will be slightly slowe r at 5.9 per cent in 2018, but faster than the ‘ A’ median five year average of three per cent .It said domestic demand will remain strong, with declining unemployment and increase in wages pushing up private consumption. Increased absorption of EU funds and launching of large projects in health and education sectors will bring back equipment and machinery invest ment to positive growth.
The structural shift of the economy towards more service – oriented and less investment – intensive sectors will lead to a sust ained surplus on the current account forecast at an average 9.7 per cent of GDP in 2018 – 2019.
Fitch forecasts general government balance to remain in surplus in 2018 at 1.5 per cent of GDP, compared with the ‘A’ median fiscal deficit of 1.8 per cent of GDP .
The Maltese banking sector remains sound with robust capitalisation and liquidity ratios, although highly concentrated.
Real estate prices are still rising at a fast pace due to a strong inflow of foreign workers, booming tourism sector, exemption of sta mp duty for first – time buyers and supply constraints. However, prices appear to still be in line with fundamentals, according to the Central Bank of Malta, and Fitch believes mitigating factors to potential instability stemming from the housing sector are relatively strong.
In a reaction, the government said that Fitch had confirmed that the improvement in public finances is down to structural changes.
It added: “ The positive report from Fitch shows that not only did the country obtain a higher rating than previous years, but is also obtaining better economic and financial results than countries which have the same rating. This should lead to more interest in Malta from foreign investors.”
