The exit of the United Kingdom from the European Union – Its short-to-medium term impact on the Maltese economy

Abstract

This note studies the impact that the UK’s exit from the EU might have on the Maltese economy in the short-to-medium run using the Central Bank’s macro-econometric model. The study, which starts by reviewing economic relations between the two countries, takes into consideration both direct effects emanating from lower demand from the UK, as well as indirect effects due to the negative economic impact to the EU of this development. Any study of this kind is surrounded by a high degree of uncertainty as the terms of the UK’s exit are still unknown. In balance, the economic consequences for Malta are likely to be negative, with a peak effect on GDP ranging between 0.24% to around 0.54%, with the external sector featuring as the main contributor. However given Malta’s GDP is projected to grow by 12% over this period, the impact, even in the worst-case scenario, is relatively limited.