IMF warns of risks to recovery
Pension reform critical
Malta’s real estate market weakness could turn out to be deeper and more protracted than expected in view of excess supply and some debt overhang, the International Monetary Fund warned yesterday.
In its outlook on Malta’s economy, the IMF said that while the island had weathered the global recession relatively well and was enjoying a “cyclical upswing” driven by external demand, the momentum was expected to fade.
Manufacturing and tourism activity had recovered but some sectors were lagging behind. Consumption growth had slowed partly on the back of softer real estate prices, and investment, especially in construction, had decelerated sharply.
Besides real estate, risks to economic growth were also to be found in the fragile economic and financial situation in parts of the euro area which could spill over to Malta, the Fund said.
On the other hand, growth in the medium term could exceed the euro area average if the momentum of reform and diversification into high value export activities was sustained. Growth could also be sustained longer than anticipated by low interest rates and export demand.
On the fiscal front, the IMF welcomed the government’s goal of reducing the deficit to 1.4 per cent by 2013. However, it sees significant risks of falling short of targets arising in part from a slowing of economic growth and slippages in containing expenditure.
In what has now become an oft-repeated warning, it said a “bold and comprehensive pension reform” was critical to contain future fiscal costs as Malta’s age-related public spending was projected to increase significantly over the long term. “A timely but gradual introduction of an additional mandatory and privately funded pillar would allow the government to reduce further the benefits of the pay-as-you-go system over time.”
Vulnerabilities were also rising in the financial sector, and the IMF again identified real estate as one of the risk factors. While conservative funding models and a focus on domestic assets had protected banks from the global financial crisis, the past real estate boom had led private debt to increase significantly. While property prices had corrected after a period of high growth and appeared to have stabilised, excess supply remained in segments of the market.
Experience from other euro area countries showed that such potential imbalances need to be treated proactively, the IMF advised. Non-performing property loans were on an upward trend, weighing on bank profitability, and many banks were highly exposed to the real estate sector.
The IMF said Malta was adjusting to the challenges of globalisation, with progress being made on diversifying the economy into high value-added activities such as aircraft maintenance and pharmaceuticals.
However, raising productivity, skills and employment rates simultaneously was necessary for catching up with incomes of richer European countries.
“Wages should follow productivity developments. Employment rates, in particular for women, remained low and more flexible arrangements for part-time work and flexible working practices could help,” the fund said, also calling for increased support for education.
Popular Stories
Update 3: Marsa murder - Police looking...
Update 2: Three arrests after flamingo...
Former Judge Ray Pace found dead
Where’s Everybody staff is given notice
Revealed...the face of a Maltese woman...
Update 4 - Eddie Fenech Adami stable...
Update 3 - Woman trapped as car crashes...
Updated - Two bodies, capsized boat,...
Franco Mercieca doing routine eye ops at...
In Discussion
Update 2: Three arrests after flamingo...
Enemalta seeking minimum five year gas...
Mario de Marco, Zammit Dimech concede,...
Chinese company to study Malta-Gozo...
Updated - PM reacts to Labour anger on...
Franco Mercieca doing routine eye ops at...
No appeals board for first part of power...
Updated - PM comments as Franco Mercieca...
BBC site highlights illegal hunting in Malta
12 Comments
Post comment
Please sign in or create your Account to post comments.
l fenech
Nov 24th 2010, 09:06
Le skond il-ministri kollox sejjer sew u hrigna mir-ricessjoni.
Kevin Zammit
Nov 23rd 2010, 22:35
taken from http://www.economist.com/node/17522578
Smallness also makes austerity a bit easier to stomach: everyone knows someone, or knows of someone, who has lost a job or taken a pay cut to keep one. Yet the very cosiness has contributed to the trouble. “There is a culture of ‘I can’t slam people, because I know them’,” says a business leader. This may explain why Ireland’s bank regulators were so complacent about the scarily rapid growth of Anglo Irish, its concentration of lending risk in a single sector and its heavy exposure to a few dozen property developers.
In a report on the banking crisis this year Patrick Honohan, head of Ireland’s central bank since 2009, wrote of an “unduly deferential” approach to banks by regulators. The tight-knit world of Dublin’s political and financial elite does not encourage challenges to consensual thinking. Perhaps this groupthink lay behind the government’s pledge to guarantee the debts of Anglo Irish and five other banks in September 2008. That has limited the state’s ability to force losses on the banks’ bondholders and left the public finances in ruins. ... Nobody seemed to think that Anglo Irish might be insolvent.
Paul Smith
Nov 23rd 2010, 18:59
Nov 10 (Reuters) - The availability of oil worldwide has already peaked, the European Union's energy chief Guenther Oettinger said on Wednesday. "My fear is that the global consumption of oil is going to increase, but European oil consumption has already reached its peak. The amount of oil available globally, I think, has already peaked," Oettinger told a news briefing in Brussels.
Alex Ellul
Nov 23rd 2010, 18:12
Then came the surprise; it reversed itself and increased production to 13,000 barrels a day. Probable reserves have been increased to 400 million barrels from 60 million. The field appears to be filling from below and the crude coming up today is from a geological age different from the original crude, which leads to the speculation that the world has limitless supplies of petroleum. continued:
Paul Sammut
Nov 23rd 2010, 14:12
IMF JUST DON'T TOUCH OUR PENSIONS.
Alex Ellul
Nov 23rd 2010, 12:27
Run for the hills. The IMF are here. After the battle is lost they come and bayonet the wounded.
@my old pal Paul Smith: Do still believe in this eak oil scam? LOL.
Paul Smith
Nov 23rd 2010, 15:17
Peak oil occured in 2001 in the UK north sea, Hubbert predicted USA peak oil in 1971 (he was correct) more and more countries are becoming net importers.
Peak oil is not a scam Alex. If it were, why would Arriva, Virgin atlantic, Stagecoach, southern Electric all be lobbying the UK Gov to come up with a plan?
You got back to sleep on your little island.
Paul Smith
Nov 23rd 2010, 15:29
If peak oil were a scam Alex, why has it been discussed at British cabinet level in 10 Downing street?
Why is it being discussed on BBC Newsnight, why is it openly talked about in the British /global Media?
Why did the German military just issue a report on peak oil? Why did the US military issue a report?
why did Bank of Montreal issue a report. And now the IEA admit it!
But according to you, it's a scam?
Your a strange fellow
Alex Ellul
Nov 23rd 2010, 16:14
Peak oil has been discussed for ages, since the first dyay oil was struck in 1860 or there abouts. You should see what the Russians are doing in oil extraction, Brazilains, the Brakken fields in the USA and Canada, shale oil and gas, hydro fracking... The USA is exporting coal to China and if Mr. Obama gives the green light, the USA would become self sufficient in oil and a global exporter of natural gas.
You ask: >If peak oil were a scam Alex, why has it been discussed at British cabinet level in 10 Downing street? Why is it being discussed on BBC Newsnight, why is it openly talked about in the British /global Media? Why did the German military just issue a report on peak oil? Why did the US military issue a report?< The militray always assess risks at tits highest levels.
>why did Bank of Montreal issue a report.< Because its a bank.......oil-drum banging.
Paul Smith
Nov 23rd 2010, 12:10
The Achilles heel for Malta is the global price of oil, more so than all the other EU members.
The price of oil will determine the future of the economy and accroding to the IEA we have reached global Peak Oil http://www.energybulletin.net/stories/2010-11-11/iea-acknowledges-peak-oil
You cannot grow an economy without cheap plentiful inputs of oil, and there is nothing that is going to replace oil in the near to long term, there is no such thing as renewable technology as it needs fossil fuel inputs. Malta does not have enough water for everyone without cheap plentiful oil to run RO.
But hey, dont worry, just carry on with BAU
John Azzopardi
Nov 23rd 2010, 11:29
Malta is always in a precarious situation. The IMF must know something about our real estate. Malta has weathered the lastest economic storm because of several factors - hardcurrency made it into our banks prior to joining the Euro just in time before the world financial meltdown in OCT of 2008, lower wages than other EU zone countries, no property taxes to put pressure on property prices, etc etc. But, let's not trump our horns too much, as we are way too small and totally dependent on tourism and other people to buy our empty properties. I think it would be a great idea for bank to evaluate their lending to investors to build large building developements. If these developments sit idle for an extended period of time, all of Malta will suffer. Look what happened in Ireland, US, etc etc. the property market is what took these economies down. In Ireland, if anyone has been following the latest economic situation, it's all about the lending the Irish got to overbuild. Malta already has a large number of excess supply and more investment in property is not worth it at the moment. Malta, be careful. It can happen to you.
Joseph Cauchi
Nov 23rd 2010, 10:19
This is definitely a very positive certificate for Malta from the I.M.F. (International Monetary Fund).
It proves to show that Malta is on the right track and has successfully weathered the storm of the Global Recession, when the I.M.F. declared that “Malta weathered the global recession relatively well and it is enjoying a cyclical upswing”.
However, Malta must still be on the look-out as the perils of recession are not yet over, as black clouds still loom over the horizon!
Well Done, Malta and Keep It Up!
Malta, the David among the Goliaths!
J.C.
Please choose the reason of your report below: