Economists, politicians and the recession (1)

"I have always believed that economists automatically quit the profession the moment they leap onto any political bandwagon" (February 11).

MEP Edward Scicluna's view (March 15) that Malta needs "to wait a bit longer before it was out of recession" proves my point. Precisely.

As an economist Prof. Scicluna knows too well that a recession, being a "flow movement", is not adjudged on a comparison of quarters four times removed, but contiguous. The problem, however, is that it needs two successive quarters of GDP contraction to be "officially" in recession, but only one quarter of positive growth to slip out of it. The reasoning for this has always baffled me, especially in the realisation that a single quarter might contain a seasonality element factor which could send out the wrong early signal to policy-makers. Perhaps the Prime Minister should have waited for this current quarter's eventual performance report before declaring officially that the country is out of the recessionary woods. But he is a politician, not an economist.

Of more concern to an apolitical economist is the statement attributed to the Minister of Finance/Economy that the financial services sector has now grown to an extent of contributing 22 per cent to our GDP.

This is a frightening thought in Malta's scenario where the sector is owned mostly by non-nationals and where, consequently, the National Income has been consistently below our domestic product. At 22 per cent the sector's weightings are much higher than tourism, manufacturing, construction, and lower only to the public sector's. In fact an analysis of the 2009 last quarter identifies it as the motor which has pulled us out of the recession.