Together with the budget presented in Parliament last week, the Ministry of Finance also published the Economic Survey for 2007. This gives a comprehensive overview of the Maltese economy, providing a range of data that gives the reader a clear message of where the economy is performing well and where the economy is not performing so well. There is a snag in that the data for this year refers to the first six months.
This has happened because of the early presentation of the budget. Still, there is general consensus that the economy has performed very well this year, following the good performance in 2005 and 2006.
Gross Domestic Product in real terms (that is after accounting for inflation) increased by 3.6 per cent in the first six months of this year, when compared to the corresponding period last year.
The increase in 2006 over 2005 for the whole year was of 3.2 per cent, while that in 2005 over 2004 was of 3.1 per cent. One needs to remember (lest we forget all too easily, as some would like us to do) that 2004 was the year we became members of the European Union.
Thus since joining the EU we have had good growth rates and the growth rate is increasing. The aspiration that, within the EU, Malta's economy would grow stronger, has been realised.
The growth in the gross domestic product is not the only positive growth indicator that we have. Employment is another critical one. The percentage of persons registering as unemployed under Part I of the ETC register was down to 3.9 per cent in June 2007. The trend of the unemployment rate is also downward.
In fact the rate in 2004 was 5.1 per cent, in 2005 it was 4.4 per cent, while in 2006 it was 4.3 per cent. The gainfully occupied population (that is the number of persons holding a full-time job) stood at 140,067 in June this year.
This marks an increase of over 2,600 persons since 2004. The public sector represented 30.3 per cent of the gainfully occupied population this year, while it represented 33.3 per cent in 2004. A note of caution needs to be stated regarding the labour supply. The aging population, coupled with the fact that young people today are staying longer in education and are starting their working life later, has meant that the labour supply increased only by 1,000 in the last three years.
We need to appreciate that economic growth in Malta is highly dependent on the number of people working, and therefore we need a steady increase in the labour supply. If we do not manage a steady increase in the labour supply, our economy runs the risk of running out of steam. This can be achieved in three ways: By encouraging a higher female participation rate, increasing the retirement age and making it attractive for pensioners to continue working.
An issue that has plagued us for the last 10 years has been the level of the fiscal deficit and the need to bring it down to sustainable levels. The structural deficit was reduced to 2.68 per cent of GDP in 2006, thereby falling within the parameters that needed to be met to join the eurozone. The government is predicting that the deficit for 2007 would reach 2.11 per cent of the gross domestic product. The projection for 2008 is a deficit of 1.21 per cent while the aim is to achieve a fiscal surplus by 2010 - an ambitious target given the current price of oil and the further transformation that our economy needs to go through. However, even in this regard one can rightfully claim that Malta has performed well, again because we have managed to exploit the opportunities of EU membership.
The last parameter to consider is inflation, which has now reached an annualised rate of 0.81 per cent. We have not had an inflation rate below the one per cent level for a couple of generations. One needs to remember that the inflation rate a year ago was 3.42 per cent.
One needs to be aware that the increase in the price of fuel and other raw materials such as cereals, is bound to cause an increase in the price of goods and services. One therefore needs to be careful not to fuel inflation through a lack of fiscal prudence.
There are other aspects of the economy that one may analyse such as exports (which is a reflection of the performance of manufacturing industry), or tourism, or the financial services sector, or the level of deposits held by commercial banks. They all indicate a healthy state of the economy. Thus the question that we need to ask is whether this winning performance is sustainable.
The answer needs to be a conditional one - it is sustainable if we keep on adopting the right economic policies.
Although we are reaping the benefits of EU membership, such EU membership is no guarantee for economic success. We can lose all we have gained through overspending in the public sector, through a lack of investment in education, health and the environment, through an economic policy stance that scares away private sector investment and through a lack of fiscal prudence.
Thus there is no room for complacency. We have achieved such a winning performance through sheer hard work and competence; it can be guaranteed in future only through the same hard work and competence.