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International Monetary Fund. European Dept.
This Selected Issues paper analyses immigration and the labor market in Malta. This paper finds that immigration has been positive for Malta, as it has helped boost growth, employment, productivity and incomes. The increased availability of foreign labor has also helped contain wage inflation (and hence probably also price inflation) in recent years, contributing to maintain competitiveness in the face of a booming economy. The results suggest that foreign workers have helped contain aggregate wage inflation. The baseline regression includes as regressors the headline unemployment rate, lagged core inflation, labor productivity growth, the share of foreign workers in total employment, and the first and fourth lags of the dependent variable. The results across some selected models suggest that foreign labor has helped contain wage inflation in recent years. In order to identify the drivers of nominal wage growth, a decomposition analysis is conducted which allows calculating the contributions of each of the independent variables included in the regressions.
Dilyana Dimova
The labor share in Europe has been on a downward trend. This paper finds that the decline is concentrated in manufacture and among low- to mid-skilled workers. The shifting nature of employment away from full-time jobs and a rollback of employment protection, unemployment benefits and unemployment benefits have been the main contributors. Technology and globalization hurt sectors where jobs are routinizable but helped others that require specialized skills. High-skilled professionals gained labor share driven by productivity aided by flexible work environments, while low- and mid-skilled workers lost labor share owing to globalization and the erosion of labor market safety nets.
International Monetary Fund. European Dept.
This Selected Issues paper assesses the marginal impact of promoting inclusive growth in Malta. The paper uses a multi-country simulation model, the IMF’s Flexible System of Global Models calibrated for Malta, is used to analyze the macroeconomic impacts of ongoing and potential future reforms. Three different policies are analyzed, namely: increasing childcare and after care benefits; extending working lives; and upskilling the labor force. The model shows that the reduction of absolute poverty has been accompanied by rising inequality. The simulation evaluates the macroeconomic impact of introducing free childcare, which is the actual government policy since 2015. Simulations show that policies that are primarily aimed at improving social inclusion also end up boosting potential output, thereby mitigating the fiscal cost of such policies in the long term. Recent declines in poverty rate can partly be ascribed to the cycle, however, recent structural reforms likely have had a significant impact on growth.
Mr. Johannes Wiegand
When the euro was introduced in 1998, one objective was to create an alternative global reserve currency that would grant benefits to euro area countries similar to the U.S. dollar’s “exorbitant privliege”: i.e., a boost to the perceived quality of euro denominated assets that would increase demand for such assets and reduce euro area members’ funding costs. This paper uses risk perceptions as revelaed in investor surveys to extract a measure of privilege asscociated with euro membership, and traces its evolution over time. It finds that in the 2000s, euro area assets benefited indeed from a significant perceptions premium. While this premium disappeared in the wake of the euro crisis, it has recently returned, although at a reduced size. The paper also produces time-varying estimates of the weights that investors place on macro-economic fundmentals in their assessments of country risk. It finds that the weights of public debt, the current account and real growth increased considerably during the euro crisis, and that these shifts have remained in place even after the immediate financial stress subsided.
Mr. Dmitry Gershenson, Mr. Albert Jaeger, and Mr. Subir Lall
In 2011, following years of large-scale external imbalances financed by debt, Portugal’s economy reached a crisis point. To restore economic growth and credibility with international lenders, the country embarked on a difficult path of fiscal adjustment and structural reforms. By many metrics, Portugal’s 2011–14 macroeconomic stabilization program has been a success, but going forward Portugal would benefit from policies to reduce vulnerabilities, absorb labor slack, and generate sustainable growth.
International Monetary Fund. European Dept.
This 2015 Article IV Consultation highlights that Malta’s economy is growing strongly. Real GDP growth has been one of the highest in the euro area since the beginning of the crisis, supported by vibrant domestic demand, large infrastructure projects, and a stable banking sector. Unemployment is at historical lows, and labor participation is increasing. The current account remains in surplus, and the external position is broadly in line with fundamentals. Growth is expected to remain solid in 2016–17, driven initially by domestic demand and later by a gradual recovery of external demand. Inflation is projected to pick up gradually owing to the positive output gap and higher imported inflation on account of the weaker exchange rate.
International Monetary Fund. European Dept.
This Selected Issues paper uses a multivariate filter approach to reassess potential output for Malta, given national account data revisions and the ongoing labor market changes. The analysis reveals that the impact of the global financial crisis on potential growth has been short-lived. The analysis of the sources of potential growth reveals that weak total factor productivity growth performance and sizeable investment declines post-global financial crisis have been more than compensated by significant gains in potential employment. Potential employment growth has been the key driver of potential growth in recent years, reflecting growing working age population, and rising labor force participation, particularly among women, albeit starting from low levels.
International Monetary Fund. European Dept.
This 2014 Article IV Consultation highlights that Malta’s economy continues to weather the global crisis well. Real GDP growth has been one of the highest in the euro area since the beginning of the crisis, supported by relatively diversified exports, a recent recovery in domestic demand, and a stable banking sector. Unemployment is close to historical lows and among the lowest in the euro area. The external position is strong, and progress has been achieved in reducing the budget deficit. The macroeconomic outlook is favorable. Growth is expected to remain robust in 2015–16, supported by domestic demand. Inflation is projected to remain subdued. The current account surplus will likely persist.
International Monetary Fund
The Euro Area Policies’ 2007 Article IV Consultation reports that the economy is poised for a sustained upswing because of cyclical considerations and policies, which have had a forward-looking cast. The area’s external position and the real effective exchange rate of the euro are within range of medium-term equilibrium. Stabilizing inflation below 2 percent might well require a further gradual tightening of monetary policy. Increased contestability and integration in the financial sector is also key to improving performance.
International Monetary Fund
The quality of the macroeconomic statistics for Malta has improved significantly in recent years, particularly as a result of the legal and institutional restructuring of the National Statistics Office (NSO). These changes were made in an effort to respond more effectively to the needs of users and to comply with new data-reporting requirements of the European Union (EU). These improvements have brought Malta’s statistical practices in line with internationally accepted standards and practices in a number of statistical areas.