Doubts on GDP growth as recession deepens

Tuesday's announcement that Malta's GDP between January and March shrank by 3.3 per cent in real terms compared to the same quarter last year and contracted by 1.3 per cent against the previous three months points to a deepening of Malta's recession. It also raises questions about the official GDP growth forecast for this year.

The news follows a forecast by the European Central Bank that the eurozone economy could shrink by more than five per cent this year.

Last week's negative eurozone forecast by the ECB, was, however, accompanied by a prediction of an improvement next year, with growth of between -1.0 per cent and 0.4 per cent in 2010.

The latest GDP figures for Malta are even more depressing for the government since they were published at the same time of the Nationalist Party's dismal performance in the European Parliament elections.

The Maltese economy officially went into a recession during the second half of 2008. Economic growth for the whole of 2008 reached 1.6 per cent but the economy contracted in real terms in the third and fourth quarters by 0.3 per cent one per cent respectively.

The NSO figures released this week, which show the economy to still be in recession, show that in the first quarter of 2009, GDP amounted to €1,315.2 million, a decline of one per cent compared to the corresponding period last year. In real terms, GDP contracted by 3.3 per cent.

The National Statistics Office said that lower tourist arrivals along with a downturn in global demand due to the international financial crisis were the cause of the decline in Malta's economic activity during the period under review.

The government has adopted a micro-approach to the country's recession, focusing on the individual needs of manufacturing companies and providing them with financial aid for re-training and new production lines. In the process it has enabled a number of factories to revert to a five day week and saved a large number of employees from being made redundant.

This latest GDP figure for Malta makes it more likely that there will be a revision of the economic growth forecast for this year. Two weeks ago the Central Bank of Malta told The Times Business that it was likely to further revise downwards Malta's economic growth projections for 2009.

Two weeks before that the Central Bank revised its GDP growth forecast for this year to range between 0.5 per cent and 1.1 per cent, down from the "just under two per cent" it had projected in December 2008 for 2009. When the European Commission launched its spring economic forecast last month it had forecast that Malta's GDP will contract by 0.9 per cent in 2009.

The government, on the other hand, has forecast an economic growth rate of 2.5 per cent for this year. Although it is now highly unlikely that this target will be reached, the government has not yet revised its forecast.

Last March economist Edward Scicluna, who was elected an MEP in last Saturday's election, had told The Times Business that Malta's recession would probably drag on throughout the year. "My guess is that the recession will be with us throughout the year," he had said.

In other bad news in Europe, the unemployment rate in the eurozone in April rose to 9.2 per cent from 8.9 per cent in March, the highest rate since September 1999, Eurostat said last week.

Unemployment in the EU rose to 8.6 per cent in April from 8.4 per cent the previous month.