Fragile economic recovery expected

The worst effects of the global recession on Malta's economy are almost over and the local economy should be able to see some economic growth next year, although at lower levels than usual.

According to economic forecasts unveiled yesterday in Brussels, GDP is expected to turn to the black once again in 2010, following a 2.2 per cent contraction expected this year.

This "fragile economic recovery" will come through increased private and public consumption and better results in trade flows where both imports and exports are expected to rise marginally. According to Brussels, this will help the island sustain job creation and stem the rise in unemployment.

On the other hand, Brussels is predicting that, in 2010, inflation in Malta will remain higher than the euro area's average, the construction industry will underperform and wage growth will exceed productivity with the risk of reducing Malta's competitiveness.

When compared to the rest of Europe, Malta's economic performance is better than many of its partners.

The euro area is expected to register a GDP contraction of four per cent this year (2.2 per cent in Malta) while unemployment stood at 9.5 per cent (7.1 in Malta). On the other hand, inflation here remained higher than the average in the 16-member euro area.

According to the Commission's economic analyses, issued twice annually, Malta's economy in 2010 is expected to register a 0.7 per cent growth, the same as that predicted for the euro area. However, the Commission said that "the scope for a quick turnaround appears limited".

"Economic activity is projected to gradually improve in 2010 and 2011, although growth is set to remain below historical trends," the Commission states. Between 2005 and 2007, Malta registered average GDP growth of four per cent.

According to the Commission, 2009 was the year in which Malta's economy had to face the effects of the global recession.

"Private consumption is set to contract in 2009 due to lower real disposable income stemming from rising unemployment and slower wage growth."

The controversy on the cost-of-living-adjustment (COLA) mechanism was also dealt with by Brussels. In fact, the Commission appears to agree more with those who want wages to rise according to productivity.

"Despite the contraction in output, nominal wages continued to accelerate in the first half of 2009 compared to the same period in the previous year, which may jeopardise competitiveness," the report says.

"In addition, the cost of living adjustment in line with the high inflation registered in the past months is expected to entail nominal wage growth above the euro area average in 2010, although the relatively flexible private sector wages may limit this development."