The international economic scenario during 2015 has been dominated by moderate euro area economic growth, financial market volatilities, increased global uncertainties, downturn in emerging market economies and geopolitical tensions. Despite these challenging conditions, the euro area is on the path of moderate recovery and has registered a higher than expected growth rate during the first half of 2015. This was mainly due to several temporary factors, including persistent low oil prices, euro exchange rate depreciation and easy financing conditions through the ECB's decision to set historically low interest rates.
According to the last economic projections by the Commission, real GDP in the euro area is envisaged to have grown by 1.6 per cent during 2015, in tandem with persistent deflationary pressures. The latter is being addressed by the ECB's bond-buying program aimed towards re-anchoring inflation expectations. Moreover, public finances in the majority of euro area countries continued to improve, with positive developments registered with respect to both the deficit-to-GDP ratio as well as the debt-to-GDP ratio.
Modest improvements have also been registered in the euro area's labour market. However, unemployment is declining only gradually and there are still significant discrepancies across countries. In general, risks to the outlook of the EU and the euro area remain elevated and have moved to the downside, primarily due to the increase in external risks (such as the disruptive adjustment in China) exceeding the fall in internal risks (such as the potential exit of Greece from the EU).
During 2015, Malta continued to register relatively higher economic growth than most of its euro area counterparts. According to the Commission's Economic Forecast, Malta's economy is expected to have expanded by 4.3% by the end of 2015. It attributes this significant economic growth to the boost in investment that took place during the year. Price inflation in Malta has remained above that of the Euro area and is expected to continue picking up. The favourable macroeconomic conditions are contributing to positive developments in public finances. Both the General Government deficit and the debt-to-GDP ratio are projected to decline further. Improvements have also been registered with respect to the labour market with a youth unemployment rate standing well below that of the euro area and total unemployment at historic lows.
The IMF Concluding Statement of the 2015 Article IV Mission notes that Malta has remained resilient to the globally challenging environment. This stability could be principally attributed to the reliance on domestic funding and the relatively well diversified economy. The financial services sector continued to expand during 2015, contributing further to Malta's economic expansion. Ongoing efforts have been made so as to continue strengthening the regulatory and supervisory framework, including the move towards a banking union and the implementation of Solvency II for the insurance sector.
The Economic and Market Overview report includes insights on the economic performance and outlook of both Malta and the Euro area. It presents the major regulatory and supervisory developments that have taken place during 2015 as well as trends in Malta's financial sector during the year. The full version of the Economic and Market Overview may be accessed from the MFSA website www.mfsa.com.mt under Publications.
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