fiscal space accumulated in recent years. liquidity measures such as tax deferrals, moratoria on loan repayments and the malta development bank covid - 19 guarantee scheme, have all been fundamental in limiting bankruptcies by providing liquidity support. in addition, the wage supplement scheme has been very successful in avoiding higher unemployment. additionally, the voucher scheme has been a welcome boost to support domestic consumption, and provided some relief to the retail and hospitality sector during summer. meanwhile, both the ecb and the european commission introduced new pandemic instruments, which benefitted the domestic economy, though the benefits of some of these, like the next generation eu funds, will accrue during 2021. given this context, the bank expects economic activity to contract sharply this year, with a gradual recovery starting next year, though this outlook is conditional upon a containment of the spread of the virus and the rollout of a vaccine during 2021. compared with our august projections, we are revising gdp growth downwards in 2020 and 2021 due to the deterioration of the international economic environment ; the renewed containment measures introduced in october ; and a more subdued recovery in tourism than previously anticipated. exports are expected to be the largest contributor to the decline in gdp in 2020. both domestic and external factors have been severely negative for exports during this year. in particular, foreign demand has declined dramatically while travel disruptions negatively affected services exports. in addition, supply disruptions during the first part of the year have adversely impacted the productive capacity of maltese exporters. exports should bounce back next year, but will likely remain constrained by uncertainties related to travel and brexit. furthermore, in 2021, foreign demand is expected to recover only partially from the decline experienced in 2020. as restrictions were lifted in may and june, private consumption is expected to have recovered somewhat, partly assisted by the government ’ s voucher scheme, though uncertainties about the length of the pandemic are likely to have kept household saving higher than usual. we expect this positive momentum in consumption to persist in the final quarter of the year, amid relatively resilient labour market conditions, though the containment measures introduced in october are likely to limit expenditure on certain services and may keep household saving still abnormally higher. overall, consumption is expected to decline in 2020, but is expected to be the main driver of the recovery in the coming year. page | 2 document classification : public the decline in demand and the elevated level of uncertainty have also led to

at €1. 9 billion, equivalent to almost 17 % of resident lending, with households accounting for the lion ’ s share, though these represented 10. 1 % of lending to households. by september, the amount of loans subject to moratoria started to decline, falling to 15. 6 % of resident lending, as some of these borrowers were in a position to resume their loan repayments, signalling a recovery in economic activity. at the same time, around €165. 6 million loans were disbursed under the malta development bank ’ s covid - 19 guarantee scheme, accounting for almost 4 % of the resident corporate loan book to support working capital page | 3 document classification : public requirements of businesses. a further €178 million have been sanctioned but not yet disbursed. such loans were mainly granted to the wholesale and retail trade, accommodation and food service activities, and the transport and storage facilities, which were the sectors that were worst hit by the pandemic. banks worked hard to activate such schemes within a relatively short period of time. the support provided by domestic banks was made possible because of their prudent business models coupled with the implementation of a stronger post - global financial crisis regulatory framework, which over the past years strengthened the overall resilience of the financial system. although, as with other banks around the globe, domestic banks posted significantly lower profits – with a few registering losses in the first half of 2020 – their financial standing remains sound. this has been consistently confirmed by the central bank ’ s latest stress tests aimed at assessing the resilience of domestic banks to the adverse effects of the pandemic. such tests featured extensively in our financial stability report and in the interim report. the resilience of our banks, as the current spread of the pandemic continues to unfold, is truly a testimony that prudence is the best response to the high level of uncertainty created by this shock. as a result of the pandemic, the ecb, national central banks, and the regulatory authorities have all launched a number of measures aimed not only at supporting the economy, but also in part directed at encouraging banks to utilise the capital and liquidity buffers built up in recent years to deal with crisis situations that arise. such measures included : • in order to ensure that banks can continue to fulfil their role of funding the real economy, the ecb allowed banks to temporarily operate below the level of capital defined