A reassessment of external demand’s contribution to Malta’s economic growth

Abstract

Over the last decade, the Maltese economy experienced the second-fastest rate of growth amongst EU countries. This has coincided with the emergence of a number of new export-oriented services sectors, such as online gaming, and a pronounced expansion of existing ones, such as aviation services, which have had a significant impact on the islands' main macroeconomic indicators (Grech et al. 2016). This followed the entry of Malta into the European Union, which meant that services firms locating in the islands could now access the single market. Exports of goods and services, in fact, grew by 67% in real terms over the last decade, such that they stood at 133% of GDP. This is the second highest ratio observed amongst all EU countries. However, the method typically used to compute contributions to economic growth have been suggesting that the influence of exports has been somewhat muted. For instance, in 2015, despite exports of goods and services rising by nearly half a billion euro-the equivalent of a quarter of all government current expenditure during that year-the contribution of net exports to real economic growth was deemed to be significantly negative (see European Commission 2016 and Central Bank of Malta 2016). This result was driven by the fact that during that year, there was an exceptional rise