Domestic price inflation'the most pressing problem'

Domestic price inflation is the most pressing macro-economic problem of the Maltese economy, according to a study commissioned by the Chamber of Small and Medium Enterprise - GRTU.

The study, Exports, Inflation And Value-Added, concluded that Malta has become 24.52 per cent more expensive over the last nine years but derived no economic benefit. In fact, net value-added per capita in real terms was the same last year as it was in 1996.

The study was conducted by Joe Falzon, from the University's Department of Banking and Finance, as part of the consultation process regarding the budget for 2007.

"Inflation, through wage adjustment and increased input costs, is hurting manufacturing and tourism. There is a strong probability that, without restraint in domestic price inflation, manufacturing and tourism will continue to decline further.

"If manufacturing and tourism will continue to decline, however, then a natural question arises: From where will future economic growth come?

"A corollary question might be: What is the real international competitive advantage of the Maltese economy?"

Prof. Falzon argued that exports have traditionally been the engines of fast economic growth in the Maltese economy. So if growth in exports declined, then growth in the overall economy would drop. This was witnessed in the last five years.

The social partners, he said, should think carefully about the future path of real growth in the economy.

Without a clear strategy and a coordinated national effort, it might be difficult to revive real economic growth to a higher desired level.

The issue of fast real economic growth for tomorrow, he argued, probably remained the most important subject facing the Maltese economy today.

The GRTU's director general, Vince Farrugia, said Prof. Falzon was commissioned to conduct the study because although figures showing an improvement in the economic situation were being announced, the public continued to complain of weak purchasing power. This indicated that something was fundamentally wrong with the economy.

Prof. Falzon, Mr Farrugia added, was asked to stop short of proposing solutions so that the social partners could perhaps first agree on what was wrong and then see if together they could agree on a plan of action.

Six sectors, including the hotels and restaurants and the manufacturing sector, registered absolute decline in their operating surplus per worker employed.

Three sectors, including the hotels and restaurants sector, registered an increase in total net value-added of less than the rate of inflation. Manufacturing had an absolute decline in total net value-added.

The increase in net value- added per worker employed in six sectors, including manufacturing and hotels and restaurants, was less than the inflation rate between 1996 and 2005.

Net value-added per worker employed for the whole economy increased by slightly more than the rate of inflation.

From 1996, net value-added per capita increased by less than the rate of inflation in 2004, and by just the same rate as inflation last year.