Uneven growth reported

Last week’s contribution focused on the data on economic growth within the eurozone and the implications of that. What is emerging is that we can no longer think of a shared and homogeneous economic experience. There are going to be countries that will be moving in different directions and at a different pace. Within countries there will be segments of the population that will feel the benefit of economic growth while others will lag behind. In effect what this is implying is that we will be passing through another period of change, possibly also upheaval until a new balance is created.

Malta will also be experiencing a similar situation as its own data appears to be indicating. The data issued by the National Office of Statistics shows that the gross domestic product grew by 6.8 per cent in nominal terms in the second quarter of this year when compared to the second quarter of last year. In real terms the growth rate has been of 3.9 per cent. This means that we have practically recovered the position in which we were in 2008. If we were to look at GDP in real terms per capita (utilising the expenditure approach), one would note that this grew from €2,687 in the second quarter of last year to €2,788 in the second quarter of this year – an increase of 3.7 per cent.

In spite of this growth, the last data on employment (which is that for March 2010) shows a drop in full-time employment of around 1,100, an increase in unemployment of around 500 and an increase in part-time employment of over 2,000. This may lead one to comment about how real this economic growth is. The point is that it is real, but it is not spread across all segments of the economy. Anecdotal evidence suggests this as well. Sales of i-Phones or eating out habits would suggest a buoyant economy, which it is. However, a buoyant economy does not mean that everyone is buoyant.

Analysing the components of the gross domestic product, one confirms this view. For example, making use of the income approach in measuring GDP (students of economics would tell you that there are three approaches in measuring GDP – the expenditure approach, the income approach and the production approach), one notes that the increase in the second quarter has been mainly due to an increase in what is termed as gross operating surplus and mixed income rather than compensation of employees.

This indicates that not everyone is benefitting in the same way from the economic growth that the country is reporting. To be fair it needs to be stated that the decrease in GDP last year (when compared to 2008) was solely attributable to a drop in the profitability of businesses. Utilising the expenditure approach, one would again note an element of uneven growth. We had growth in consumption and exports and a drop in investment. The positive note is certainly that we have export-led growth – a key economic objective for any small island economy such as ours. The worrying feature is the drop in vestment after accounting for what are termed as changes in inventories and acquisitions.

The production approach gives us data about the structure of the value added component of our GDP. Most economic segments of the country did experience growth. The ones that did not were agriculture and fishing, mining and quarrying and transport, storage and communication. That tells only part of the story as financial intermediation activities have accounted for 47 per cent of the growth in the total net value added of the economy in the second quarter of this year.

One would be pertinent in asking what the policy implications are as a result of all this. First, we need to allow the situation to evolve further – a number of other countries are not yet sure whether they have exited the recessionary period. Second, we need to understand further how the restructuring of the world economy shall be affecting our own economy. Third, it would seem that our economy has to learn how to live with constant change. Fourth, the social dimension of the country’s public policy acquires new importance as maintaining social cohesion may not be as easy as it used to be in the past.

Life has taught us that growth has its pains. The economy is not exempt from this phenomenon. This is why we should not downplay our economic growth but neither should we ignore those that are not benefitting from this growth.