GDP tickles necessity
The National Statistics Office (NSO) has published the provisional data for the Gross Domestic Product outturn in 2007. That estimate of the goods and services produced by the country during the year shows a nominal increase of 6.1 per cent. That...
The National Statistics Office (NSO) has published the provisional data for the Gross Domestic Product outturn in 2007. That estimate of the goods and services produced by the country during the year shows a nominal increase of 6.1 per cent.
That measurement is only relevant in regard to the measurement of the national debt and the structural budget deficit. Otherwise, it is the change in GDP adjusted for price changes that is important. On that basis (that is, in real terms) the GDP is reckoned to have risen by 3.8 per cent during 2007. That measurement has been challenged by an academic, Joseph Falzon. He argued his thesis closely but for analytical purpose one has to go by the estimate made and defended by the NSO. The size of the movement is relevant, because it places Malta at a level which compares decently with the rest of the European Union.
More important than that, in my view, is the current composition of the Gross Domestic Product. According to the data presented by the NSO, growth in value added was generated primarily in service activities, like real estate, renting and business activities, transport, storage and communications, tourism, public administration and health. There was growth in other areas, which offered other signals regarding the way the economy is changing. For example, the growth in manufacturing was particularly evident in chemicals and chemical products.
There were declines in evidence and these also indicated what has been going on. For instance, agriculture, electricity and water supply fell behind on the previous year due to rising oil prices. That came about when the price of oil and its derivatives was taking off. Heaven knows what the effect will be this year, notwithstanding the relative cushion offered by the exchange rate - the remarkable strength of the euro against the US dollar.
Of extreme relevance was the decline reported in financial intermediation, in particular international banking institutions. This particular decline was attributed by the NSO to increases in "other operating expenses".
At a time when the inflow of financial intermediaries was booming, according to the Malta Financial Services Authority, it seems strange that the rate of growth in the contribution of this sector to GDP faltered. This movement requires more shedding of light. Increases in domestic costs tend to be reflected in higher value added. Higher foreign costs would reduce that aggregate.
The NSO's short reaction to the analysis made by Prof. Falzon was that it followed the guidelines and requirements of Eurostat. It is essential to be as certain as can be that GDP estimates are being made in the correct manner. The GDP is one of the most essential indicators of the way the economy is going. The composition is of acute relevance, in particular for a small, open economy which is highly dependent on imports and, as such, has to export a high proportion of its output of goods and services if it is to survive, let alone prosper.
That is why in such an economy consumption cannot be seen as a major driver of growth, certainly not in the same manner that it is reckoned in much larger economies which frequently stimulate consumption in order to spur economic growth. One of the main weaknesses in the proposal put forward in the electoral campaign was the high reliance that was laid on consumption.
In this post-election start up one need not refer any longer to the implications of proposals like that to cut the surcharge by half, or to make earnings from overtime income tax free. But in a year's time it is likely that the PN promise to slash income tax much more dramatically than has been done to date will start taking effect. The objective behind the differing proposals has been a common one: To leave money in people's pockets in order to stimulate spending - for which read consumption - and thereby growth.
Some growth should result but it will be a residual one after the effects of higher consumption in our type of economy have taken effect. That effect will be stimulation of imports, since the leakage from every euro spent in Malta remains as high as ever. The measurement of the performance of the GDP over the years ahead will remain crucial. There should be not the slightest shadow of doubt that the NSO is going about it in the right way.
The NSO should not enter into controversies but technical incursions to set everyone's mind at rest need not be polemical. Necessity has to be the mother of intervention when suitable.
That measurement is only relevant in regard to the measurement of the national debt and the structural budget deficit. Otherwise, it is the change in GDP adjusted for price changes that is important. On that basis (that is, in real terms) the GDP is reckoned to have risen by 3.8 per cent during 2007. That measurement has been challenged by an academic, Joseph Falzon. He argued his thesis closely but for analytical purpose one has to go by the estimate made and defended by the NSO. The size of the movement is relevant, because it places Malta at a level which compares decently with the rest of the European Union.
More important than that, in my view, is the current composition of the Gross Domestic Product. According to the data presented by the NSO, growth in value added was generated primarily in service activities, like real estate, renting and business activities, transport, storage and communications, tourism, public administration and health. There was growth in other areas, which offered other signals regarding the way the economy is changing. For example, the growth in manufacturing was particularly evident in chemicals and chemical products.
There were declines in evidence and these also indicated what has been going on. For instance, agriculture, electricity and water supply fell behind on the previous year due to rising oil prices. That came about when the price of oil and its derivatives was taking off. Heaven knows what the effect will be this year, notwithstanding the relative cushion offered by the exchange rate - the remarkable strength of the euro against the US dollar.
Of extreme relevance was the decline reported in financial intermediation, in particular international banking institutions. This particular decline was attributed by the NSO to increases in "other operating expenses".
At a time when the inflow of financial intermediaries was booming, according to the Malta Financial Services Authority, it seems strange that the rate of growth in the contribution of this sector to GDP faltered. This movement requires more shedding of light. Increases in domestic costs tend to be reflected in higher value added. Higher foreign costs would reduce that aggregate.
The NSO's short reaction to the analysis made by Prof. Falzon was that it followed the guidelines and requirements of Eurostat. It is essential to be as certain as can be that GDP estimates are being made in the correct manner. The GDP is one of the most essential indicators of the way the economy is going. The composition is of acute relevance, in particular for a small, open economy which is highly dependent on imports and, as such, has to export a high proportion of its output of goods and services if it is to survive, let alone prosper.
That is why in such an economy consumption cannot be seen as a major driver of growth, certainly not in the same manner that it is reckoned in much larger economies which frequently stimulate consumption in order to spur economic growth. One of the main weaknesses in the proposal put forward in the electoral campaign was the high reliance that was laid on consumption.
In this post-election start up one need not refer any longer to the implications of proposals like that to cut the surcharge by half, or to make earnings from overtime income tax free. But in a year's time it is likely that the PN promise to slash income tax much more dramatically than has been done to date will start taking effect. The objective behind the differing proposals has been a common one: To leave money in people's pockets in order to stimulate spending - for which read consumption - and thereby growth.
Some growth should result but it will be a residual one after the effects of higher consumption in our type of economy have taken effect. That effect will be stimulation of imports, since the leakage from every euro spent in Malta remains as high as ever. The measurement of the performance of the GDP over the years ahead will remain crucial. There should be not the slightest shadow of doubt that the NSO is going about it in the right way.
The NSO should not enter into controversies but technical incursions to set everyone's mind at rest need not be polemical. Necessity has to be the mother of intervention when suitable.