Recession hits Malta as Chamber urges caution
As expected the international recession officially left its mark on Malta as figures released by the National Statistics Office last week showed that the economy contracted in the third and fourth quarters of 2008 after registering growth in the first...
As expected the international recession officially left its mark on Malta as figures released by the National Statistics Office last week showed that the economy contracted in the third and fourth quarters of 2008 after registering growth in the first half of the year. Export figures for January also showed a steep drop over the same month last year.
Incoming tourism has also declined following a record first seven months in 2008 although the Maltese themselves are still travelling a lot. Exports, considered to be the prime motor of economic growth, continued their sharp decline in January with a drop of 37 per cent over the same month last year.
The NSO said the value of exports dropped by €67.4 million, down from €180 million in January 2008 to €112.6 million this year. Much of the decline came from the electrical machinery sector. The value of exports in this sector was €53.2 million last January, a drop of €30.7 million over the same period last year.
The sector to experience the second largest drop was that of pharmaceutical products, down from an export value of €16.2 million in January 2008 to €9.9 million this year.
Economic growth for the whole of 2008 reached 1.6 per cent which, although positive compared to other countries,, was still two percentage points below the previous year and only half of what the government forecast in the last budget.
A sample survey released yesterday among manufacturing enterprises carried out by the NSO in the fourth quarter of last year showed a 13 per cent slide in sales. Investment and jobs were also down.
The NSO said sales by the sampled manufacturing enterprises stood at €513.5 million, a decrease of 12.8 per cent when compared to the corresponding period in 2007. The decrease was mainly due to lower sales by the radio, TV and communication equipment and the chemicals and chemical products sectors. Lower sales were also registered by the publishing and printing, the rubber and plastic products and the furniture and manufacturing sectors.
Higher sales were registered by the electrical machinery and apparatus and the other non-metallic mineral products sectors.
Export-oriented enterprises generated €394.6 million or 76.8 per cent of the surveyed sales for this period.
At the end of December 2008, employment in the sampled enterprises stood at 17,094, a decrease of 590 over the previous year. The decrease was mostly in the radio, TV and communication equipment sector, with a drop of 284 employees.
Investment in the sampled enterprises amounted to €32 million, a decrease of €5.7 million over the comparative period in 2007.
Helga Ellul, president of the Chamber of Commerce, Enterprise and Industry said that while the Chamber acknowledged that technically the economy was in a recession, "it advises caution about using this term loosely".
She said: "We are in a situation where vigilance and responsible behaviour are key. At the current juncture, the global economy is characterised by a significant downturn in demand, with the major economies falling into recession. The fact that our major trading partners in terms of goods and services were largely affected was bound to have implications for the Maltese economy."
"Exports constitute 47 per cent of the economy's total output. Due to the smallness of the local economy which precludes self-sufficiency, exports are a fundamental determinant of incomes which cannot be substituted by domestic demand. Furthermore, exports are typically more sensitive to fluctuations in foreign demand and relative price competitiveness than domestic expenditure, which is in part composed of government spending."
Mrs Ellul said the Chamber believed that the media has an important role to play in shaping business and consumer confidence.
"We need the media to portray the situation as it really is and to keep a sense of perspective. The current situation is not easy but certainty there is currently no reason for any significant panic. It is important that the media explains what the challenges are, but it is equally important that both sides of the story are tackled. We need the media to assist Malta and the rest of the world to rebuild confidence within consumers and entrepreneurs because the sooner confidence is restored, the quicker can we overcome this situation," she said.
Asked by The Times Business how she would like the government to respond to these latest economic indicators, she said: "Back in January the Malta Chamber had prepared a paper including numerous short-term and long-term measures as part of a package for economic support. We are in fact still waiting for the government's response to it. So far we have seen that the task force has been successfully established, with immediate results.
"The Malta Chamber believes that full support must be given to current government efforts to support the manufacturing sector, although increased communication is needed. While the task force is tackling the immediate micro level problems, it is essential to look beyond the current six months and plan ahead, to map out what we are likely to face this year, as well as the next, and our possible responses. This could be carried out through the MCESD. The situation in Malta and indeed worldwide is unprecedented, thus it requires constant vigilance, with all stakeholders
working together to meet the challenges ahead," she said.
She stressed that the Chamber could not emphasise the importance of solving the electricity tariffs issue, once and for all.
"This is the prevailing issue which has affected business negatively and created great uncertainty. Until this issue is resolved the business community will continue to suffer the consequences."
Mrs Ellul said the Chamber was confident about the future, "but stimulus is now all-important". What is more, she said, business needs to be listened to, and supported.
"In addition, it cannot be burdened any further with more government induced costs for this year. Together with the unions we should seek more flexibility in the labour market to safeguard as many jobs as possible.
"Even during such times as these, new business opportunities exist, thus we have to be quick and flexible enough to take them on. While other countries are struggling because of their large size, we can turn our small size to our advantage by responding quickly to new emerging trends, which are likely to become the norm once the world economic recovery starts. The Maltese private sector has to be at the forefront of change, in the way we do business, and in the legislative framework within which we carry out our business," she said.
She added: "The Malta Chamber insists that panic and irrational pessimism are unnecessary. We have to be realistic, accept the facts and respond accordingly. With timely and targeted measures we can maintain confidence levels while achieving the required economic momentum to get through these unpredictable economic times."
Economist Edward Scicluna is critical of the way the government evaluated the economic climate. "We now know that the economy dipped into negative growth throughout the second half of the year. The third quarter refers to those three months prior to the announcement of the tariff increases. The budget came later in the middle of the fourth quarter, and still the language used by the government was upbeat with projections of economic growth of three per cent in 2008 and 2.4 per cent in 2009. All this when the economy had already been four months into the recession," he said.
Prof. Scicluna, who is contesting the European Parliament elections in June on the Labour ticket, said that unlike previous years (prior to 2006) the Economic Survey presented at budget time does no longer cover the third quarter. "Worse still," he added, "in the section about future economic prospects it talks about the EU's future and nothing about our economy's future".
"Was the government left in the dark? How could the leading indicators used by the government economists fail to reflect any negative trend in their evaluation? Or did the minister fail to listen to their warnings? This issue is of great concern, not only to economists, but to all private operators who may have risked investments of thousands of euros based on the wrong signals sent at that time," he said.
Prof. Scicluna said he did not think the recession will create more uncertainly and pessimism among both businesses and consumers.
"The days when doctors used to hide the truth from their patients is now long past. I tend to hope this applies to the economy as well. People want to know the truth. Investors want to know the truth. One has to plan accordingly. It is very unfair and unjust to hide the truth about the economy for whatever the reason. This type of paternalism is completely alien to the thinking of the members of the European Union and the European Commission which is very transparent in its observations, thinking and policy making."
Prof. Scicluna said it was important for the government to learn how bad the recession is. This is not measures, he said, by the current level of unemployment. "Unemployment is a lag not a leading indicator. In other words it measures the economy of yesterday. Surely not of today or of tomorrow. I would rather get a survey of exporters' order books and hotel booking than any outdated official statistic. These data are in fact collected by the Chamber of Commerce, Industry and Enterprise and the MHRA. The picture is not nice since the cuts in exports and tourist expenditures we are experiencing are significantly larger than those experienced by other EU member states. So the hemorrhage could be extensive."
He said that whatever is done today "we are somewhat late" and what we have to do "we must do quickly" adding that the cut in VAT on restaurants' services, which the government is considering, should have occurred earlier.
He added: "I would suggest a similar cut on all repair and maintenance services especially those carried out in the homes. This would cushion the negative multiplier effect emanating from the external cuts in demand suffered by our export oriented and tourist sectors."
Regarding the government's economic growth predictions for 2009 Prof. Scicluna said they were admittedly wrong in the first place, and the EU Commission has already modified them significantly downwards.
"Exports were projected to fall by three per cent this year. They fell by 37 per cent during the first month of the year. This is quite a significant difference. The question is whether countercyclical expenditure, the so called automatic stabilisers, made up of unemployment and social benefits together with the planned revamping of EU-funded projects together would make up for the significant fall in incomes in the affected sectors. It looks at this stage that it will not be possible. My guess is that the recession will be with us throughout the year," he said.
He added that the budgetary stimulus measures proposed to the Commission in December last year by the government, in the framework of the European Economic Recovery Plan, "are overly optimistic when they estimate to boost the economy by more than one and a half percentage points of GDP".
"First of all they were meant as a band aid meant for a minor fall in exports and a relatively buoyant economy. The situation has now changed dramatically, and instead we might need a much stronger dose of medicine. Secondly, you just cannot expect to boost the economy with such a package and in the same stability programme document promise to raise the tax burden. The two policies are countercyclical.
"My recommendation is that the government should talk straight to all Maltese, and lay out an economic plan for all to follow. I am positively sure this would work for the better. This has occurred in special times where a big confidence boost is required. I feel that this time the occasion merits it. It would be foolish to think otherwise."
Speaking to The Times last week, Finance Minister Tonio Fenech said Malta was not immune to the international financial situation but the "prudent" work being done by the authorities should bear fruit once the world started to emerge from the downturn.
He said the economy was still "quite stable" and the government's work should create positive results when the world economy started to recover.
"It is imperative to help companies to invest now since this would allow us to be better prepared to come out of this situation.
"If the government had said there was nothing to be done at the present time and that it would try to attract companies once the storm is over, more time would have to go by before we would be able to bring companies back to the island," he said.
Incoming tourism has also declined following a record first seven months in 2008 although the Maltese themselves are still travelling a lot. Exports, considered to be the prime motor of economic growth, continued their sharp decline in January with a drop of 37 per cent over the same month last year.
The NSO said the value of exports dropped by €67.4 million, down from €180 million in January 2008 to €112.6 million this year. Much of the decline came from the electrical machinery sector. The value of exports in this sector was €53.2 million last January, a drop of €30.7 million over the same period last year.
The sector to experience the second largest drop was that of pharmaceutical products, down from an export value of €16.2 million in January 2008 to €9.9 million this year.
Economic growth for the whole of 2008 reached 1.6 per cent which, although positive compared to other countries,, was still two percentage points below the previous year and only half of what the government forecast in the last budget.
A sample survey released yesterday among manufacturing enterprises carried out by the NSO in the fourth quarter of last year showed a 13 per cent slide in sales. Investment and jobs were also down.
The NSO said sales by the sampled manufacturing enterprises stood at €513.5 million, a decrease of 12.8 per cent when compared to the corresponding period in 2007. The decrease was mainly due to lower sales by the radio, TV and communication equipment and the chemicals and chemical products sectors. Lower sales were also registered by the publishing and printing, the rubber and plastic products and the furniture and manufacturing sectors.
Higher sales were registered by the electrical machinery and apparatus and the other non-metallic mineral products sectors.
Export-oriented enterprises generated €394.6 million or 76.8 per cent of the surveyed sales for this period.
At the end of December 2008, employment in the sampled enterprises stood at 17,094, a decrease of 590 over the previous year. The decrease was mostly in the radio, TV and communication equipment sector, with a drop of 284 employees.
Investment in the sampled enterprises amounted to €32 million, a decrease of €5.7 million over the comparative period in 2007.
Helga Ellul, president of the Chamber of Commerce, Enterprise and Industry said that while the Chamber acknowledged that technically the economy was in a recession, "it advises caution about using this term loosely".
She said: "We are in a situation where vigilance and responsible behaviour are key. At the current juncture, the global economy is characterised by a significant downturn in demand, with the major economies falling into recession. The fact that our major trading partners in terms of goods and services were largely affected was bound to have implications for the Maltese economy."
"Exports constitute 47 per cent of the economy's total output. Due to the smallness of the local economy which precludes self-sufficiency, exports are a fundamental determinant of incomes which cannot be substituted by domestic demand. Furthermore, exports are typically more sensitive to fluctuations in foreign demand and relative price competitiveness than domestic expenditure, which is in part composed of government spending."
Mrs Ellul said the Chamber believed that the media has an important role to play in shaping business and consumer confidence.
"We need the media to portray the situation as it really is and to keep a sense of perspective. The current situation is not easy but certainty there is currently no reason for any significant panic. It is important that the media explains what the challenges are, but it is equally important that both sides of the story are tackled. We need the media to assist Malta and the rest of the world to rebuild confidence within consumers and entrepreneurs because the sooner confidence is restored, the quicker can we overcome this situation," she said.
Asked by The Times Business how she would like the government to respond to these latest economic indicators, she said: "Back in January the Malta Chamber had prepared a paper including numerous short-term and long-term measures as part of a package for economic support. We are in fact still waiting for the government's response to it. So far we have seen that the task force has been successfully established, with immediate results.
"The Malta Chamber believes that full support must be given to current government efforts to support the manufacturing sector, although increased communication is needed. While the task force is tackling the immediate micro level problems, it is essential to look beyond the current six months and plan ahead, to map out what we are likely to face this year, as well as the next, and our possible responses. This could be carried out through the MCESD. The situation in Malta and indeed worldwide is unprecedented, thus it requires constant vigilance, with all stakeholders
working together to meet the challenges ahead," she said.
She stressed that the Chamber could not emphasise the importance of solving the electricity tariffs issue, once and for all.
"This is the prevailing issue which has affected business negatively and created great uncertainty. Until this issue is resolved the business community will continue to suffer the consequences."
Mrs Ellul said the Chamber was confident about the future, "but stimulus is now all-important". What is more, she said, business needs to be listened to, and supported.
"In addition, it cannot be burdened any further with more government induced costs for this year. Together with the unions we should seek more flexibility in the labour market to safeguard as many jobs as possible.
"Even during such times as these, new business opportunities exist, thus we have to be quick and flexible enough to take them on. While other countries are struggling because of their large size, we can turn our small size to our advantage by responding quickly to new emerging trends, which are likely to become the norm once the world economic recovery starts. The Maltese private sector has to be at the forefront of change, in the way we do business, and in the legislative framework within which we carry out our business," she said.
She added: "The Malta Chamber insists that panic and irrational pessimism are unnecessary. We have to be realistic, accept the facts and respond accordingly. With timely and targeted measures we can maintain confidence levels while achieving the required economic momentum to get through these unpredictable economic times."
Economist Edward Scicluna is critical of the way the government evaluated the economic climate. "We now know that the economy dipped into negative growth throughout the second half of the year. The third quarter refers to those three months prior to the announcement of the tariff increases. The budget came later in the middle of the fourth quarter, and still the language used by the government was upbeat with projections of economic growth of three per cent in 2008 and 2.4 per cent in 2009. All this when the economy had already been four months into the recession," he said.
Prof. Scicluna, who is contesting the European Parliament elections in June on the Labour ticket, said that unlike previous years (prior to 2006) the Economic Survey presented at budget time does no longer cover the third quarter. "Worse still," he added, "in the section about future economic prospects it talks about the EU's future and nothing about our economy's future".
"Was the government left in the dark? How could the leading indicators used by the government economists fail to reflect any negative trend in their evaluation? Or did the minister fail to listen to their warnings? This issue is of great concern, not only to economists, but to all private operators who may have risked investments of thousands of euros based on the wrong signals sent at that time," he said.
Prof. Scicluna said he did not think the recession will create more uncertainly and pessimism among both businesses and consumers.
"The days when doctors used to hide the truth from their patients is now long past. I tend to hope this applies to the economy as well. People want to know the truth. Investors want to know the truth. One has to plan accordingly. It is very unfair and unjust to hide the truth about the economy for whatever the reason. This type of paternalism is completely alien to the thinking of the members of the European Union and the European Commission which is very transparent in its observations, thinking and policy making."
Prof. Scicluna said it was important for the government to learn how bad the recession is. This is not measures, he said, by the current level of unemployment. "Unemployment is a lag not a leading indicator. In other words it measures the economy of yesterday. Surely not of today or of tomorrow. I would rather get a survey of exporters' order books and hotel booking than any outdated official statistic. These data are in fact collected by the Chamber of Commerce, Industry and Enterprise and the MHRA. The picture is not nice since the cuts in exports and tourist expenditures we are experiencing are significantly larger than those experienced by other EU member states. So the hemorrhage could be extensive."
He said that whatever is done today "we are somewhat late" and what we have to do "we must do quickly" adding that the cut in VAT on restaurants' services, which the government is considering, should have occurred earlier.
He added: "I would suggest a similar cut on all repair and maintenance services especially those carried out in the homes. This would cushion the negative multiplier effect emanating from the external cuts in demand suffered by our export oriented and tourist sectors."
Regarding the government's economic growth predictions for 2009 Prof. Scicluna said they were admittedly wrong in the first place, and the EU Commission has already modified them significantly downwards.
"Exports were projected to fall by three per cent this year. They fell by 37 per cent during the first month of the year. This is quite a significant difference. The question is whether countercyclical expenditure, the so called automatic stabilisers, made up of unemployment and social benefits together with the planned revamping of EU-funded projects together would make up for the significant fall in incomes in the affected sectors. It looks at this stage that it will not be possible. My guess is that the recession will be with us throughout the year," he said.
He added that the budgetary stimulus measures proposed to the Commission in December last year by the government, in the framework of the European Economic Recovery Plan, "are overly optimistic when they estimate to boost the economy by more than one and a half percentage points of GDP".
"First of all they were meant as a band aid meant for a minor fall in exports and a relatively buoyant economy. The situation has now changed dramatically, and instead we might need a much stronger dose of medicine. Secondly, you just cannot expect to boost the economy with such a package and in the same stability programme document promise to raise the tax burden. The two policies are countercyclical.
"My recommendation is that the government should talk straight to all Maltese, and lay out an economic plan for all to follow. I am positively sure this would work for the better. This has occurred in special times where a big confidence boost is required. I feel that this time the occasion merits it. It would be foolish to think otherwise."
Speaking to The Times last week, Finance Minister Tonio Fenech said Malta was not immune to the international financial situation but the "prudent" work being done by the authorities should bear fruit once the world started to emerge from the downturn.
He said the economy was still "quite stable" and the government's work should create positive results when the world economy started to recover.
"It is imperative to help companies to invest now since this would allow us to be better prepared to come out of this situation.
"If the government had said there was nothing to be done at the present time and that it would try to attract companies once the storm is over, more time would have to go by before we would be able to bring companies back to the island," he said.