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Brexit

21-03-2017

Malta’s significant foreign trade balance with the UK implies that the Maltese economy is potentially one of the most exposed EU countries to the consequences of Brexit.

According to the IMF, the value of all imports from the UK is equivalent 27.3% (21.1% services 6.2% goods) of Malta’s GDP – the highest for any Member State. The UK’s departure from the EU could lead to higher import costs in the form of tariffs thus pushing up prices for Maltese consumers. On the other hand, this may be mitigated by the appreciation of the euro against the pound.

Meanwhile, a cheaper pound will make Malta’s exports to the UK more expensive. The effect on Malta’s balance of payments will ultimately depend on the price elasticity of demand of the exported goods and services.

With the peak travel season about to begin, millions of British holidaymakers and traditional destination countries, including Malta, are set to discover the immediate effects of Brexit. 

British tourists made up 30% of the 1.8 million visitors who came to Malta last year, contributing just under €0.5 billion to our economy. 

Unless the pound recovers quickly, this could lead to British tourists to head elsewhere or holiday within the UK and Maltese hoteliers and businesses are concerned about the consequences of the Leave vote. 

Malta Hotels and Restaurants Association president Tony Zahra said “a weaker sterling will get less euro for its pounds, so it will be more expensive for the British traveller to holiday outside UK. But it’s more complicated than that, especially in terms of British holidaymakers’ behaviour. Experience has demonstrated that demand for overseas travel by the British traveller is price sensitive.”

According to the IMF, Malta is the second most exposed Member State (after Cyprus) in terms of services exports to the UK, which amount to 6.5% of the country’s GDP. Meanwhile, Malta exports the equivalent of 2.0% of its GDP of goods to the UK. Exports of goods will also be adversely impacted by the depreciation of the pound, the extent of which depending on how price sensitive UK consumers are.

Standard & Poors also highlights Malta as being ‘on the frontline of economies susceptible’ to trade aftershocks from Brexit. S&P indicate that FDI from the UK into Malta amounts to 6.3% of Malta’s GDP, the highest figure of all Member States along with Cyprus. How adversely affected such flows will be now that the UK has voted to leave the EU depends on the degree of integration that the UK will negotiate with the EU.