The coronavirus pandemic has taken the world – and global economy – by storm. But as EU nations begin to look at life after lockdown, Malta appears poised to rebound more quickly than most.
While the Maltese government has predicted a 5.4 percent economic contraction for the island this year, the European Commission has forecast a 5.8 percent dip, driven by a steep and sharp decline in private consumption, as well as an almost total freeze of the highly valuable tourism market. Almost all non-essential business on the island closed on March 26, and while some began to re-open on May 4, the majority are set to remain shuttered until early June as the government works to measure the behaviour of the virus as restrictions ease.
In its analysis of the challenges facing the island-nation’s economy, the European Commission said that the effects of the pandemic would test Malta’s “resilient economic growth model”, predicting that “After several years in surplus, the general government balance is expected to slip into deficit and public debt to rise, as the government takes fiscal measures to offset the crisis.” The report added that “private consumption and trade are projected to take a significant hit, while increased public spending should partially mitigate the effects of the recession.” The commission has also said that employment is likely to “decline temporarily” as unemployment increases.
But the study also pointed to the healthy savings rate on the island along with the large number of infrastructure and public sector projects as optimistic. The EU anticipates that despite the 5.8 percent contraction, Malta’s economy will bounce back by 6 percent in 2021. Meanwhile, the average EU economic contraction is expected to be in the region of 7.7 percent.
Unemployment and Job Creation
The Labour Party government of Prime Minister Robert Abela is set to face challenges related to the considerable spike in Malta’s unemployment numbers. But similar to the economic contraction, the surge in joblessness is still likely to remain below the EU average. The rate of unemployment on the island is expected to rise to 6 percent from its record low of 3.5 percent in 2019, but the government has forecast that this rise will drop to 4.4 percent in 2021. Job creation on the island will drop by 1.8 percent, which is far less than the eurozone average of 4.7 percent. In France, for example, a nation hit particularly hard by the pandemic, the creation of new jobs is set to plunge by 9.1 percent.
“I am pleased to note that the European Commission’s forecast corroborates both our own outlook and those of the other international institutions and credit rating agencies. Malta has provided a number of economic shock absorbers which are expected to stand up well during this crisis and help the economy to recover quickly and return to strong growth next year,” said Maltese Finance Minister Edward Scicluna.
Drivers of Recovery
While Malta’s open economy makes it highly susceptible to external events, the country’s efforts to embrace technology and innovation over the past decade have made it home to sectors that are ideally suited to the rigours of remote working. While the global sports industry has come to an almost complete standstill, the island’s busy online gaming sector had long before pivoted to e-gaming. Meanwhile, blockchain firms are ideally set up to have their employees work from home as they deliver cryptocurrency and other DLT services across the world, whereas the growth of the country’s financial services sector – another key driver of the Maltese economy – has been substantially linked to Malta’s digital drive. And it seems this technology-driven strategy is set to play an important role in the country’s road to recovery.
In a Times of Malta op-ed, JP Fabri, a partner at investment firm Seed, notes that the resurgence of the Maltese economy in the wake of the pandemic should place digital transformation at its core, with the government leading the way by providing public services in a digital fashion. This would include tracing protocols for monitoring the containment and transmission of COVID-19 cases.
“Measures need to be directed towards reducing the digital divide to truly empower our population to embrace the full benefits of technology. As we start looking at the post COVID-19 world, we need to consider tech-enabled mechanisms for economic resilience. While disruptions to international supply chains exacerbated shortages in personal protective equipment, technologies such as 3D printing have helped with rapid prototyping and production of face shields,” Fabri notes.
The article also posits that machine learning should be the basis of the Maltese health system’s ability to track, trace, monitor and manage COVID-positive cases and outbreaks. “Numerous tech platforms today supply brick-and-mortar businesses with diverse options for delivery and fulfilment,” said Fabri. “Examining the question of how tech can enable and build resilience could help us prepare for emergencies in the future and to build a future-proof economy.”
There is still a way to go before Maltese businesses are able to fully restore operations, and the country is able to welcome visitors in a normal fashion. But for all intents and purposes, the economic drivers on the island remain resilient and will likely assist the nation in making a swift economic recovery post-pandemic – despite the considerable challenges in the short term.