In fact, the Commission’s experts are forecasting that this year and over the next two, Malta will have the highest current account surplus as a percentage of GDP of all euro area countries, “beating” countries such as Germany and the Netherlands. Whereas, going forward, growth is expected to moderate somewhat, Malta will continue to out-perform significantly the euro area. The Commission’s Autumn 2017 Forecasts put us at the head of the league table both in terms of real GDP growth and employment increases. Though there are downside risks stemming from more inward-looking policies abroad and an uncertain external environment, including the impact of Brexit on the continent’s economy, domestic demand in Malta should continue to grow at a fast rate, particularly as wage growth will boost disposable income while investment is expected to remain sustained. In last year’s speech I described what we believe are the conditions leading to this performance. Part of our success is attributable to cyclical factors, such as the effects of the ECB’s monetary policy actions to stimulate the euro area economy. Accommodative  monetary policy is boosting aggregate demand, locally and in our trading partners, and lowering the external value of the euro, which helps our exporters. We also noted how strong government investment, partly financed by EU funds, is helping the Maltese economy. However in last year’s speech we emphasised that most of our current economic growth is attributable to structural changes, which have contributed to more than double our potential growth rate since the global financial crisis.

In fact policy documents, such as the 2018 Pre-Budget Document and the Budget for 2018, have stressed the need to upgrade infrastructure and enhance environmental protection. Similarly, international institutions have emphasised the need to shift attention towards sustaining growth and making it more inclusive. Going back to the latest IMF Article IV mission, their recommendations focus on addressing housing market pressures, closing the infrastructure gap, upskilling and reskilling the labour force and strengthening innovation. We would like to discuss some of these challenges, before outlining how we think that our financial sector can play a role in helping to tackle them. The housing market In last year’s speech, we touched upon the need to avoid the formation of asset price bubbles. We quoted Central Bank research indicating that house prices were still below their equilibrium fundamental value, but warned that price trends would nevertheless continue to be closely monitored. House prices, as you know, have continued to rise. Page 4 of 10  National statistics data suggest an increase of 5.3% during the first half of this year, as against 6.1% in the same period of 2016 and 3.2% in 2015. That said, housing supply is responding to the high demand that is contributing towards house price inflation. In the first seven months of 2017 building permits were 62% higher than they were in the same period of 2016 and 153% higher than in 2015. This increased supply, unless there is a further acceleration in demand, should result in housing price inflation moderating.