There has been some encouraging news in the last few weeks indicating that we may indeed be exiting the recession tunnel. GDP grew by an impressive 3.4 percent in the first quarter of this year when compared to the same period of 2009. The balance of payments showed similar improvements in the same period with exports increasing at a faster rate than imports. Tourism also picked up in the first quarter with a healthy six per cent increase.

Perhaps even more encouraging was the announcement of two major capital investment projects connected with the building of a corporate village in Mriehel and a sports village at the former White Rocks complex. This, combined with the continuation of Smart City, should see the construction industry flourish in the next two to three years.

But these welcome developments should not lead us to be too euphoric about the prospects of robust economic growth in the medium term. Malta's economy continues to be very dependant on the state of other European economies. The prospects for these economies remain uncertain with the public debt crisis still casting long and dark shadows on the economies in the eurozone and Britain on which we are so dependant.

Unless strong political leadership leads to convincing solutions to the structural weaknesses of public finances in Europe, we will continue to experience excessive turbulence in financial markets that will in turn affect the real economy. European consumers are in no mood to feel optimistic about the future.

Jobs are still being lost in most European countries and this will affect demand for our goods and services. The chance of a double dip recession in most EU countries as a result of savage cuts to control public expenditure is still real.

An analysis of the GDP constituents for the first quarter of 2010 shows that we are improving our productivity as we have been able to produce more while compensation to employees has been falling. Put another way, for every euro we are paying in wages we are producing more added-value. Especially welcome is the improvement in the productivity of the tourism sector.

One aspect that keeps worrying me is our performance in education. Recent Eurostat statistics prove that we still occupy the unenviable last position in the league of countries where students leave the educational system without formal qualifications or skills. While there is no doubt that much is being done to remedy this situation, we may still not be doing enough to address this critical success factor for attracting investment and creating jobs.

Unemployment, even if lower than in the rest of the eurozone, remains high at seven per cent. Were it not for significant underemployment in the public sector (too many public service workers with not enough work to do) our unemployment record would probably match the 10 per cent reached in other eurozone countries. Another reason why our unemployment rate is not as bad as in other eurozone countries could be related to the size of our black economy which absorbs significant numbers of workers that are not legally employed but not registering as unemployed.

This poses a difficult challenge for our political leaders. Curbing the black economy at this stage could create a shock in the economy that could easily lead to recession. But, if our public finances are to be sanitised, we must ensure that fiscal morality becomes a reality.

As pointed out by various independent reports by the IMF and the European Commission, the future viability of public services in Malta is still uncertain because of the lack of detail in the government's plans to make these services viable. The more we postpone this issue, the more it will be difficult to prepare public opinion for the necessary changes that are inevitably being introduced in most other EU countries.

The government's outline plans for the 2011 budget should be announced soon. This will be the acid test on how determined we are to make the best of the opportunities we have to curb the cost of government, to improve the educational and physical infrastructure of the country to attract new investment that will promote economic growth and create jobs, and to define a social model that will do justice to our tradition of a caring society.

This may seem a tall order, but we need to be both ambitious in our objectives and daring in our resoluteness to implement the difficult changes needed to guarantee success for this and the next generation.

jcasarwhite@yahoo.com

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