A range of indicators is reviewed in these reports, accompanied by a discussion of risks and opportunities in the field of inflation. The present situation In the latest inflation report, published this March, GDP growth in 1997 and 1998 was expected to be around 2 and 3 per cent, respectively. It was also argued that sizeable capacity restrictions should not arise in the course of the period. Given that, and inflation expectations being low, underlying domestic inflation (measured with the CPI excluding transitory effects on inflation) in the coming two years was put at between 1.5 and 2 per cent. As we all know, to forecast inflation is a complicated task. In view of the shortcomings in such estimates, it is more a matter of assessing the balance of risks. Our latest  BIS Review 47/1997  -4-  inflation report therefore includes a discussion of two alternatives in which future inflation might be either lower or higher than in the main scenario. One alternative is that inflation could be lower than in the main scenario, mainly if private consumption were to be weak. The other envisages the opposite - higher inflation - on account of a weaker exchange rate that stimulates a stronger growth of exports and GDP, leading to increased inflationary pressure. What are the economic tendencies that have appeared during the last months? During winter there were signs of a slowdown in manufacturing.
The current state of the Maltese economy The prospects for the creation of new economic activities opened up by EU membership come at an opportune moment. For while Malta’s growth rate in 2004, estimated at around 1.5%, registered a marked turnaround since 2003, it was low compared to the rates achieved by other new EU members whose level of development is comparable to Malta’s. This relatively weak performance, moreover, did not suddenly materialise last year, but has now been persisting since 2001. A relatively sluggish pace of export activity underpinned the low growth rate in 2004, while imports rose at a faster pace, partly in response to the removal of tariffs on certain products. This wider trade gap led to a current account deficit of over 10% of GDP, a development that was to a certain extent anticipated. For, while it is possible to absorb larger volumes of imports at short notice, penetrating new export markets is a medium-term project. It is nevertheless imperative that the country manages to exploit the new market openings, because the current account deficit experienced in 2004 is not sustainable. The economy’s relatively subdued performance last year can also be attributed to the short-term effects of the process of fiscal consolidation aimed at narrowing the budget deficit. Malta is still one of the EU Member States with the highest levels of general government deficit and debt expressed as percentages of GDP.