demand. although smaller, the contribution of net exports was also positive, reflecting continued export growth. while gdp growth moderated in the first half of 2019, at 4. 7 % it remained comfortably above the euro area average of just above 1. 0 %. we expect the positive momentum in malta to persist in both 2019 and 2020. domestic demand is foreseen to remain the main driver of economic activity. favourable labour market conditions, as reflected in a further decrease in unemployment since late 2018, and a dynamic, albeit gradually normalising housing market, should continue to support household income and private consumption. moreover, growth in government consumption will remain elevated, as government is expected to use some of its fiscal space, while investment is expected to maintain a high share in gdp, reflecting the substantial upgrade to malta ’ s infrastructure. nevertheless, growth is set to moderate compared with 2018, reflecting two main factors. firstly, given the less favourable external environment, we foresee lower contributions from exports. secondly, it is to be expected that an economy that has been growing very fast to gradually return to rates that are more in line with its long - term growth. the balance of risks is tilted to the downside. this mainly reflects the risk that economic conditions abroad deteriorate further, in which case the recent slowdown in some of our closest trading partners could develop into a more severe downturn, limiting the expansion in our exports. these risks are seen as more elevated than the upside risks associated with domestic factors. for example, the labour market ’ s resilience and strong liquidity position of households could be reflected in higher than expected private consumption. government expenditure could also surprise on the upside. indeed, malta is one of few countries in the euro area which has the fiscal space necessary to mitigate the effects of weaker foreign demand. ideally government should utilise this space to enhance the economy ’ s capital stock and potential growth. in a recently published study, central bank of malta staff analysed in detail the effects of increases in government investment on the maltese economy under different financing scenarios. under all financing scenarios considered, an increase in government investment is expansionary throughout. in the short run, the expansionary effects are limited to demand - side effects. however, as government capital stock accumulates, significant supply - side effects begin to kick in. a higher page | 2 government capital stock helps reduce marginal costs, boosting factor productivity and helping to crowd - in other private factors of production. the

progressing safely in a riskier world address by dr mario vella governor, central bank of malta delivered during the ifs malta annual dinner 19 november 2019 dear president and members of the committee of the institute of financial services ( ifs ) malta, personally and on behalf of the board of the central bank of malta, i thank you for this opportunity to address this distinguished audience and through them the financial services industry. dear minister, distinguished guests, dear colleagues and friends. last year, i observed that the external environment was becoming less supportive of activity. incoming data confirm this view. global gdp growth has continued to weaken. according to the imf ’ s october 2019 world economic outlook, global growth in 2019 is projected to be 3. 0 %, the lowest rate since 2009 and 0. 5 percentage points less than its january 2019 projection. a number of factors are reflected in this state of affairs, a fluid state of affairs that is characterised by high volatility and uncertainty, a state of affairs that is anything but steady. amongst these factors are simmering political tensions and flashpoints within and between states around the globe ( some of which may eventually erupt as armed conflicts ), uncertainty about future trade policies amongst which are ( but certainly not the only ones and not the ones with the most far reaching negative consequences ) those related to brexit, and the impact of climate change and related policies including and especially policies that deny the man - made causes of climate change. the consequences of these factors on investment and trade are being amplified by a deterioration in business confidence. projections for 2020 also point to weak momentum, as most of the prevailing sources of uncertainty are expected to persist. while global gdp growth is expected to reach 3. 4 % next year according to the imf, this is still below the 3. 8 % recorded in 2017 and the pick - up is largely driven by emerging and developing countries. by contrast, average gdp growth in advanced economies is expected at page | 1 1. 7 % this year and next, down from 2. 3 % in 2018. a lower rate is projected for the euro area, as growth in its larger economies with the exception of spain is expected to stand far below 2. 0 %. although malta is a small economy with a relatively high exposure to the international business cycle, it has maintained its resilience. in 2018, gdp grew by 6. 8 %, the second highest rate in the european union. this mainly reflected a very robust expansion in domestic