Maltese Economy

Since the British withdrew in 1979, Malta has established a diversified economy. To date, and in preparation of Malta’s 2004 inclusion to the EU, Malta began the process of privatising state controlled companies and introducing legislation to liberalise markets and promote communication, competition and transparency.

Figures from the National Statistics Office show Malta's GDP was approximately 3.5 billion USD in 2001. The country's economy is largely based on the tourist, manufacturing and financial services industries. Tourism is the single biggest industry and according to the World Travel and Tourism Council, accounted for 14 percent of GDP in 2002. There are approximately 200 foreign and 400 locally owned manufacturing companies operating in Malta. Manufacturing accounted for 21% of employment and in 2004, total manufacturing production was $764.5 million. Some of the main manufacturing products include clothing and textiles, electronics, processed food and tobacco products.

Other sectors in which Malta can offer an exceptional advantage in comparison to other destinations are: ICT, knowledge centre/back office services, health care (rated within the top 5 worldwide by WHO), logistics, maritime (natural harbours, well equipped ports, bunkering, transhipment etc.), aviation and training/education.

EU Accession

Being an independent European nation, Malta has always enjoyed strong relations with Europe. The Maltese economy is already well integrated with the European Union with the EU being by far Malta’s largest trading partner. In the first nine months of 2005 trade with the EU represented 51% of Malta’s exports and 70.8% of the island’s imports.

Now that Malta is formally part of the EU, the free physical movement of goods and capital, in view of the single market, will further facilitate trade and investment. In particular, firms located in Malta will have far easier access to the full EU marketplace than in the past.

GDP Growth

Chart 1 (right) shows that the Maltese economy exhibited signs of a steady recovery in 2004 (and is forecast to continue). In 2004, services accounted for 77.2% of total gross value added, in comparison to 74.5% in 2003. Production(including mining and quarrying, manufacturing, electricity, gas and water supply but excluding construction) accounted for 20.5% in 2004, as compared to 22.6% in 2003 – this continues to confirm the steady decline in the contribution to total gross value added made by this sector over the recent years. Between 2003 and 2004, a marginal increase of 0.1% was registered by the construction sector in the share of gross value added; the share of the agriculture, hunting and fishing sector remained virtually unchanged during 2004.


Chart 2: GDP growth at constant prices (Q/Q-4): international comparisons

> Click here to view Chart 2

According to EU data, many large Union economies continued to register positive-growth in the second quarter of this year ~ this even applies to Italy, which for the first time in three consecutive quarters, reported positive economic growth in real terms.

Chart 2 shows that the growth in the euro-zone and EU-25 countries has remained positive in recent quarters - however, a slight decline was observed from the second quarter of 2004 which persisted to the end of that year. The first two quarters of 2005 appear to indicate a minor rebound of the economies in these areas, albeit they have yet to attain their former levels of economic growth that existed at the start of 2004.

Significantly, growth in the euro-zone and the EU-25 group of countries has remained positive despite the fact that the major industrial economies have been beset by negligible, and sometimes even negative growth over the last preceding four quarters.

Many of the new Member States have consistently reported positive real GDP growth approximately equal to, and in many instances, greater than unity, from the latter half of 2003 onwards.

International Trade

Tourism aside, Malta’s limited supply of natural resources and raw materials means that a substantial portion of its requirements are imported, as illustrated in Chart 3. The past few years have seen the economy gradually evolving to a more service orientated structure. The core motors of Malta’s economic growth are financial services, tourism, the export of manufactured goods and transport-related services such as transhipment and ship repair.

Chart 3 (right) : International Trade.

Increases in oil prices exacerbated by the strengthening US Dollar, the decline in semiconductor prices (a major share of Malta’s export portfolio) and low economic activity in Malta’s main trading partners all contributed to a decline in the value of Maltese exports in the first nine months of 2005.

The decline in imports was not large enough to compensate for the loss of exports resulting in increased trade deficit of Eur788.5 million (Lm 338.5 million) from Eur636.6 million (Lm 273.3 million) of the same period of 2004.

In the fist nine months of 2005, the largest decline in exports for the corresponding period of 2004 was from France and the UK amounting to Eur34.4 million (Lm14.8million) and Lm11.3million respectively. In fact, the only increase in exports was to Italy (one of Malta’s main trading partners) and Belgium for a combined increase of Eur21.2 million (Lm9.1million).

The EU was still the most important regional trading partner for Malta in the first three quarters of 2005, accounting for 51% of Malta’s Eur1386.7 million (Lm595.3million) exports, an increase of 2.2% on the corresponding nine months of 2004. During the same period, exports to the USA and Asia fell, partially a consequence of a decline in the Asian and semi-conductor markets.

The most dramatic increase in exports, almost 32%, was to Africa. Increased oil prices and the lifting of UN sanctions resulted in Libya being Malta’s main African export market. Tunisia, Algeria and Morocco are showing promise as fast-growing economies with the IMF predicting a 5.9% economic growth in 2006.

Chart 4: Maltese Exports (Jan – Sept 2005)

During the first nine months of 2005, exports declined by 12.6%, a drop of Eur200.6 million (Lm86.1 million) to Eur1386.7 million (Lm595.3million). The machinery and transport equipment sector contributed to a decline of 9.9% of the total, with a 3.1% decline from reduced fuel exports; the result of the termination of bunkering services in the second half of 2004 by a major operator. The decline in the machinery and transport equipment sector was the result in the fall in both semi-conductor prices and export volume (partially due to a period of consolidation and restructuring).

Disregarding the decline in these two sectors, exports in the first nine months of 2003, 2004 and 2005 have remained stable at circa Eur500.8 million (Lm215 million).