Firms cushioning economy 'by keeping workers on'

Businesses in Malta are not being aggressive enough and holding back from firing employees despite the downturn, a situation that would place them at a disadvantage once the recession is over, according to PriceWaterhouseCoopers partner Lino Casapinta.

Although Malta's economy was on par with that of other European countries, local businesses were suffering more, Mr Casapinta told a business breakfast.

One of the reasons was that businesses were less aggressive than their foreign counterparts and did not sack people, which meant they were cushioning the economy and bearing the brunt of Malta's slower activity. This was leading to less disposable cash for investment, which, according to Mr Casapinta, could be a mistake because such firms would not be able to compete once the recession was over.

He said a survey among 1,200 global chief executive officers last month found they were less concerned about the downturn and more focused on the future.

Similarly, economist Gordon Cordina said the brunt of the recession was borne by corporate profits, rather than employment income or unemployment, even though the recession was less pronounced in Malta than that experienced in other countries.

"The more competitive sectors proved to be resilient but profitability in manufacturing, tourism and distributive trades were notably hit," he said.

Profits fell by €70 million when comparing the first three quarters of 2007 to the same period last year in manufacturing alone.

Prof. Cordina pointed out that the increase in unemployment in Malta between 2007 and 2009 was one of the lowest in the EU.

Growth in bank credit remained sustained in 2008 and 2009, unlike the credit crunch, which impinged on the euro area. However, he said, when financial stability was restored in other countries, this would no longer serve Malta so strongly as a source of competitive advantage.

Prof. Cordina said investment in Malta was relatively low and had fallen substantially in the recession, which could retard recovery and dent longer term growth and competitiveness.

On the other hand, he said business confidence in the manufacturing and services sectors in Malta was recovering ahead of that of the EU.

However, confidence in the construction sector was hardly showing any improvement over the beginning of 2009.

He said that, when it came to innovation, Malta remained "a catching-up country" together with Bulgaria, Croatia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Turkey.

The Maltese economy had been in recession since 2009. Although it was not as pronounced as in the EU, the island was tracking the recovery in other EU countries.

Prof. Cordina said climate change should be viewed as a business opportunity to stimulate innovation and energy cost savings.

He said the priorities should include ensuring that markets were properly functioning, safeguarding labour cost competitiveness in labour-intensive and low-value-added sectors with the aim of supporting restructuring and introducing family-friendly measures within a flexicurity approach.

He also stressed the importance of better exploiting EU opportunities for business and making regulation more efficient and sensitive to the requirements of economic growth.