Maltese business cautious about 2005 prospects

A survey conducted by the European business organisation Eurochambers across businesses in the EU reveals that Maltese businessmen are taking a 'cautious' approach on their business prospects for next year.

Published last week in Brussels, Eurochambers' Economic Survey is an annual, qualitative regional survey of business expectations in Europe. The survey is implemented by the European Chamber of Commerce and Industry and co-ordinated by Eurochambers.

In Malta the survey was carried out by the Chamber of Commerce and Enterprise through a harmonised questionnaire sent to entrepreneurs.

This year's survey results suggest that on average, the European economy will grow in 2005, but only gradually. Enterprises expect the world economic upswing to continue next year.

The survey says that Maltese companies are somewhat cautious about 2005. Business confidence is much lower than in 2004. The net balance for business confidence for 2005 stands at nine in the survey's index, when compared to 36.3 for 2004.

Service companies are in general much more optimistic than manufacturing companies. The survey states that "there is a lot of uncertainty about business development in 2005".

The survey was conducted before the failure of discussions about the social pact and the announcement of the budget.

Regarding the total turnover of domestic sales and exports, the survey states that in Malta, as the impact of EU membership works itself into the system - affecting in multifaceted ways economic restructuring, imports and exports and traders' behaviour - the relationship between output composition and output growth, investment and employment will become evident and pronounced.

Maltese enterprise prospects for total turnover are somewhat weaker than for 2004 and significantly lower than the EU average.

The survey says that "this is largely due to an anticipated contraction in domestic sales, an inevitable outcome for a micro-economy in a post-EU membership scenario due to significant import penetration, particularly in some of the remaining protected sectors."

The situation, however, is compensated by strong export sales prospects, placing Malta at the EU average. The survey states that "this should be a normal process for this small island economy as more emphasis is being given to export led growth".

The Maltese businessmen were also asked about employment prospects. The report says that the employment situation in businesses surveyed appears stable and over half the respondents did not change their workforce this year (59 per cent in the manufacturing sector).

This trend will be even stronger in 2005 with two thirds of the businesses interviewed in both manufacturing and services foreseeing unchanged employment prospects.

The demand for labour services appears stable for the time being. The report states that "this is also a reflection of the period of consolidation/re-appraisal that industry seems to be passing through."

As regards investment, the report states that this was buoyant in 2004 compared to 2003. Thirty-nine per cent of respondents registered growth, this percentage being marginally lower for manufacturing companies compared to service companies.

"For 2005, more than a third (36 per cent) of the enterprises in both sectors plan to invest more in their capital stock. There is a slowing down in services but a continuation of the relatively buoyant momentum in manufacturing."

The report notes that a turnaround in services is nevertheless expected with the coming into stream of new hotel properties and other tourism-related projects. The trend in manufacturing is explained by efforts to enhance standards and productivity levels to further exploit opportunities post-entry into the Single Market.