Editorial

For the past three months there has been talk by some economic analysts that they are seeing the first green shoots of an economic recovery. Yet, many consumers are still not convinced and believe that the evidence of recovery looks more like red herrings.

On the home front, public and private bond issues have been taken up by the public as though money was just flowing from their deep pockets. The Malta Stock Exchange followed international bourses and has recovered most of the losses experienced since the beginning of 2009.

A report on the property market by the Chamber of Commerce, Enterprise and Industry indicates that, despite a hefty decline in property prices of 15 to 20 per cent in the first quarter of this year, this important market may have turned the corner. The Prime Minister reiterated a number of times that in the last year 7,000 new jobs were generated and new investment was still flowing in.

In the international context, oil prices rose to over $70 per barrel, a hike exceeding 50 per cent over recent lows. Bond yields rose as more investors left the safe haven of bonds and dipped their feet again in equity markets. Job losses rates in Europe and the US declined and seemed to stabilise at levels that are more acceptable than they were six months ago.

Yet, the most recent economic forecast by the World Bank has suddenly dampened the weak optimism that was beginning to appear. Justin Lin, the chief economist at the World Bank, justified his institution's bleak forecasts by saying that 'The need to restructure the banking system, combined with emerging limits to expansionary policies in high-income countries, will prevent a global rebound from gaining traction".

This is very relevant for Malta because it is one of the countries that are most dependent on external trade for its economic growth. In the first quarter of 2009, Malta experienced a 31 per cent drop in exports, a 3.3 per cent decline in real GDP and a 21 per cent drop in tourists' expenditure. This happened while the country experienced an inflation of 3.4 per cent, the highest recorded in the eurozone.

Any positive regeneration in the economy is possibly still at the germination stage rather than the green shoot sprouting stage. The Minister of Finance has confirmed that 26 companies have asked the government for assistance to prevent job losses as a result of a fall in international demand for their products. So far, six have obtained the help they asked for.

With the World Bank lowering its forecast for economic growth in the eurozone from a negative 2.7 per cent to a negative 4.5 per cent, the worst phase of this recession is possibly still to come. Malta's economic prospects will only look brighter when countries like Germany, Italy, France and Britain begin to recover and their people show their improving confidence about the future by increasing their demand for Malta-made goods and services.

In the meantime, to quote European Central Bank president Jean Claude Trichet, "we are in uncharted waters and there are still risks of a sudden emergence of unexpected financial turbulence".

All this should not discourage one from pursuing the path of economic reform, even if this will cause some more pain at a time when the electorate seems to be losing confidence in the validity of such reforms. Recovery may be slow but it will also be strong if the country invests in long-term reforms.