Editorial

With talk of worsening economic conditions likely to take hold again in no time after the festive season, strong leadership and clear thinking will be required on the government's part to help ease as much as possible the difficulties lying ahead.

A somewhat stuttering start to its third successive term in office, highlighted by the ill-timed revision of the water and electricity rates, has raised concern over the way the government is handling the situation in the wake of the fears generated by the financial crisis and recession abroad. Yet, despite this, and the widespread pessimism over the economic prospects for the new year, the government is displaying confidence in the country's ability to weather the storm.

The problem is that few people are as yet sharing the government's enthusiasm over this. A number of workers have already found themselves out of work and hoteliers, restaurateurs and retailers are reporting a slump in their business. Making a generous allowance for the usual tendency on the part of businessmen to generally overstate downturns, it is clear that the fear of uncertainty, drummed up by the endless flow of bad financial news from abroad, has made an impact on consumer spending.

According to a Eurobarometer survey, about 45 per cent of Maltese respondents said they were expecting the economy to worsen this year. Quite significantly, only 19 per cent think it will be better. Also very telling is the number of those who expect their personal household finances to be worse in 2009, 30 per cent up by 16 per cent over October in 2007. About 46 per cent said they expected to remain in the same situation as last year. As expected, the people's main concern is over the rise in the cost of living, fuelled, no doubt, by the revision of the rates for water and electricity consumption.

Had it not been for the greed shown by investment bankers abroad, particularly in the United States, and weaknesses in the financial regulatory systems, the world might have been spared the financial turmoil now hitting both rich and emerging countries. The International Monetary Fund does not paint a pretty picture; in an update to its World Economic Outlook, it said that prospects for global growth have deteriorated, with output in advanced economies contracting on a full-year basis, the first such fall in the post-war period. Growth was projected to "slow appreciably" in emerging economies. It is definitely a dull forecast, one that adds to the uncertainty already gripping so many people everywhere.

Malta had been doing well before the crisis broke out, with the government managing to narrow the deficit as the economy continued to grow. Public expenditure is now rising again and the target set for the government to balance its books has been postponed. Growth forecasts have now been scaled down and the government has had to launch a stimulus programme aimed at deflecting the impact of the downturn.

Up to €232 million are to be injected in capital projects, such as roads, construction, factories, public infrastructure, the environment, culture, heritage and schools. Prime Minister Lawrence Gonzi said his government felt this was the best response to the crisis but others disagreed, arguing the government should have put more money into people's pockets. Considering the delays usually involved in the execution of government projects, not to mention overruns, it remains to be seen over what period the government projects will start working their way into the economy and ease the expected impact of the downturn.