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David Lindsay
According to forecasts made by the International Monetary Fund in its recently released World Economic Outlook, Malta’s economy can expect to be the slowest growing of all the accession countries both this year and next.
According to its forecast, Malta’s gross domestic product is gauged to grow at a rate of 2.6 per cent this year and 3.2 per cent in 2005 – well below the accession country respective averages of 4.5 and 4.4 per cent. The averages for southern and south eastern Europe – including the accession countries of Malta, Bulgaria, Cyprus and Romania – for the same years are 4.8 and 4.9 per cent.
The Baltic states of Estonia, Latvia and Lithuania show the strongest growth prospects, with average GDP grow rates of 6.2 and 5.9 per cent. Lithuania, followed closely by Latvia, show the strongest GDP growth prospects of the accession countries.
However, Malta is at the lower end of the spectrum when it comes to rises in consumer prices, which are expected to increase by just 2.1 per cent this year and two per cent in 2005. Malta compares well in this respect, with the average for southern and south eastern Europe standing at a respective 9.4 and 5.9 per cent and accession country averages of 7.1 and 2005 per cent.
The IMF estimates that economic growth will be 4.5 percent this year and 4.4 in 2005 in all countries entering the EU, making it one of the fastest developing regions in the world.
Turning to more specific developments in the accession countries as a whole, the IMF reports, “Following their remarkable economic transformation over the past decade, 10 accession countries will join the European Union in May 2004. Attention will then turn to the next stage of the integration process with Europe, adopting the euro, and the prior requirement of meeting the Maastricht criteria, including membership of the Exchange Rate Mechanism for at least two years.
“In moving forward with this process, a high premium will need to be placed on ensuring that the macroeconomic framework is fully consistent with announced policy objectives as shifts in market expectations about macroeconomic convergence will be a continuing potential source of pressure on exchange and interest rates.”
Against this background, the sharp widening in the current account deficits in a number of countries in 2003 and the decline in net foreign direct investment inflows have raised questions about external sustainability and competitiveness, and the consistency of policies with announced convergence objectives. Indeed, with growth expected to accelerate during 2004–05 — and to be well above the rate in western Europe — current account deficits in most of the EU accession countries are expected to remain high.
The IMF predicts the world economy, meanwhile, “should increase 4.6 percent this year and 4.4 percent next year”.
According to the Fund, “Economic development is increasing in all of regions of the world. The growth will be faster in Asian countries and in the United States, while the growth in the countries of the euro zone will be the slowest: 1.7 percent in 2004 and 2.3 percent in 2005.”
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