The three per cent growth forecast by the government is a tall order for Malta this year. JOANNA RIPARD asked economists, banking and business leaders to look back on the year that was and found them to be taking a cautious view of 2011, mindful of many challenges ahead.
Lawrence Zammit – economist
The year that has just ended was certainly a positive one for Malta’s economy. We appear to have survived well the challenges of the international economic recession, have experienced economic growth, retained unemployment at acceptable levels, and kept the public sector deficit at sustainable levels. We have also emerged relatively unscathed from the ravages of speculation and the crisis in the financial system.
However the challenges for our economy still remain. We are still very vulnerable to developments in the international economy. Such developments include not only the level of demand in the major economies, but also issues such as the currency war between China and the United States over the value of the yuan, EU legislation that may affect some of our flourishing economic activities such as financial services and i-gaming, strategies of countries that compete with us for foreign investment and tourism.
Within this context I expect 2011 to be another difficult year for companies operating in Malta, but also a relatively quiet year with local issues being managed in a subdued manner. The projected growth rate of three per cent for 2011 is realistic and achievable. It is not an easy target and we will be stretched to achieve it. However we will get there.
On the other hand, achieving three per cent growth is not the real issue for our economy. Fundamentally there are four other issues that need to be addressed if the economic growth achieved in 2010 and to be achieved in 2011 is to have any meaning.
Will the deficit-to-GDP ratio go down below the three per cent mark as projected by government? Will economic growth be spread across all economic activities? Will economic growth trickle down to the level of those with lower incomes? Will we start thinking more long term to prepare the economy for its next quantum leap forward?
Karm Farrugia – economist
Considering the global and, more importantly, the EU scenario, I look back with crossed fingers on 2010: quite pleased in fact, but at the same time not so sure that 2011 will retain the rhythm.
That economics is now being taken more seriously by our politicians from both sides of the fence affords me a measure of satisfaction which somehow helps to assuage my long disenchantment with politics.
When the 2009 Budget was presented two years ago local clear-headed economists could already feel recessionary chills in Malta. But not the government. The opposite was the case with the 2010 Budget one year later: it accepted and reflected the fact that Malta could not possibly be expected, hard as any government could have tried, to escape unscathed from the global trauma. And the Budget prepared us for it.
Last year’s growth is real, no doubt. But, disappointingly, not exactly in the right places as I would have wished it. The sectors in the economy that have propelled growth have not been those owned chiefly by Maltese citizens. Consequently, the resultant improvement in GDP has failed to translate itself into a corresponding increase in our Gross National Income. Or at least in higher employment or better wages for the Maltese: these have been mainly a factor of those sectors recovering from last year’s biting recession.
I would much prefer a lower-than-forecast economic growth (say, two per cent) during 2011 but coming from exporting sectors (invisibles included) whose added-value contributions took account also of their profit margins rather than a three per cent (or more) growth on the same pattern as this year.
Roderick Chalmers – chairman, Bank of Valletta
Looking back on 2010, one has to say that the Maltese economy performed better than we thought likely 12 months ago. This can be attributed mainly to employment data holding up, a remarkable 12 per cent-plus growth from the tourist industry, and a strong and resilient services sector – all of these having been encouraged by an environment shaped by stable government finances and the continuing provision of credit.
Looking forward to 2011, I am tending to a cautious view. Whereas there will be pockets of opportunity, and the Maltese economy may continue to surprise and prosper in its own micro-climate, it is clear that storm clouds are gathering over Europe. One has to believe that the implementation of the many austerity measures announced across Europe are going to have a secondary knock-on effect – increased unemployment and potential political instability in certain countries appear likely outcomes, with the inevitable impact on consumer demand. It is also clear that the eurozone debt crisis has yet to play out its final act.
Whereas current mechanisms could support the contagion spreading to Portugal, it would certainly be fasten seat-belt time should Spain or Italy become infected by the current crisis of confidence. Prudence may be a good friend to have in 2011.
Helga Ellul – president, Malta Chamber of Commerce, Enterprise and Industry
In 2010 Malta registered some strong growth although it must be said that some serious structural problems continue to persist within the economy. It is no secret that the economic growth registered in 2010 was mainly driven by the financial services sector. We continue to face bottlenecks to export-led growth and the link between wages and productivity continues to be absent.
Traditional sectors, including retail and manufacturing, have lagged behind and are showing symptoms that they need a more flexible approach if they are to prosper and generate growth.
The Chamber has consistently aired this view. These very same thoughts were echoed by the Governor of the Central Bank, the European Commission and more recently by the IMF.
Malta’s need for more growth must be placed at the forefront of the national decision-making process. We must continue to find ways and means to promote competitiveness and introduce measures which do justice to our dynamic workforce and economy. We have to continue assisting our micro-enterprises to grow into SMEs capable of successfully tapping the single market.
The Chamber is taking a cautionary stance on the growth prospects of the coming year but feels that with the right focus, energy and determination it is possible that the Maltese economy will continue to register growth. We must, however, be prepared to show flexibility in how we think and in what we do. We have to accept that the practices of the past probably need revisiting with a critical eye.
The Chamber hopes that social dialogue this year will pave the way towards the introduction of flexible working practices to stimulate participation and growth. For the past two years, the Chamber has called for the introduction of ‘banking of hours’ to support further growth in the economy. Widely adopted in other EU member states, this measure allows businesses to retain highly skilled workers and helps employees strike a better work-life balance. It contributes to securing jobs and does not necessarily lead to a loss of overtime.
We are a small country and flexibility must be our main driver. If the social partners, together with the government, can agree on the need for growth and keep this goal as the primary driver of all decisions, we are confident that the Maltese economy will continue to prevail in even what is likely to be a difficult 2011.
Alan Richards – chief executive officer, HSBC Bank Malta
Following the significant economic slowdown in 2009, the local economy recovered well in 2010 with stable employment levels, modest inflation and positive trends from the main economic sectors resulting in good GDP growth.
This was achieved in spite of challenging market conditions characterised by continued low interest rates, a softening in demand for corporate lending and ongoing volatility in equity and bond markets highlighted by the sovereign bond crisis.
The Maltese economy has proved to be very resilient in 2010 and managed a relatively smooth passage through the recession, although certain pressure points remain. International agencies have affirmed Malta’s favourable credit ratings with a stable outlook. The government’s budget expenditure of €2.9 billion will see continued investment in education, capital projects, and health and social benefits. Foreign direct investment is also on the increase and a decline in the budget deficit anticipated.
Hence, continued economic growth is expected for the foreseeable future.
However, challenges within the global economy clearly remain. 2011 is likely to see softer growth across Europe, not least because of the impact of a number of austerity packages announced across the European region. Inevitably, such a slowdown will impact the economy in Malta and this has to be monitored closely.
As an international bank, HSBC Bank Malta remains committed to Malta’s development as an international financial services centre and is well capitalised, liquid and well positioned to support the local economy and its future growth.
Vince Farrugia – director-general, Chamber of Small and Medium Enterprises – GRTU
2010 was a difficult year but most businesses managed sufficiently. It could have been better had authorities been more understanding and took decisions quicker on many issues affecting small and micro enterprises – they make up 98 per cent of all enterprises in Malta.
Overall, however, as we compare ourselves with many of the other EU states, Malta has a great story to tell. We have moved further to transform our economy into a knowledge-based economy from the traditional production that is rapidly losing competitiveness.
2011 should be a better year as the world’s economic activity gathers momentum. As our economy depends almost completely on – and moves in parallel with – world economic trends, we should succeed in achieving targets. However, the government needs to be more forthcoming when dealing with the problems of micro and small firms and act faster to implement agreed solutions. We must learn to trust each other more and to think 'country' before politics and division. It’s a tough world. If we want to continue to have a good story to tell we must all work harder and seek solutions to problems, rather than just storing anger and division.
Pierre Fava, president, Malta Employers’ Association
2010 saw the Maltese economy emerge from the recession with a relatively healthy GDP growth rate and a fall in unemployment levels compared to the previous year. The situation in tourism has improved – at least in number of arrivals if not necessarily in profitability – and manufacturing output has also increased significantly.
Many companies previously on a four-day week as a result of the international recession are once again producing at close to full capacity. These factors have resulted in a positive GDP growth during 2010 which ranks among the highest in the EU. The downside is that economic growth has not been evenly spread across all economic sectors, with financial services accounting for the bulk of the expansion. Effectively the man in the street is not feeling the economic growth resulting in the low consumer confidence we are presently experiencing.
Based on the economic performance of 2010, it is reasonable to expect the economy to expand by three per cent during 2011. However such expectations would have to be based on some assumptions, namely that the world economy, particularly the euro area, will also experience economic expansion, and that Malta will not be adversely affected by a fall in demand caused by the austerity measures being taken by governments in major European economies.
The price of oil can also strongly influence our economic performance, given that we are more dependent on fossil fuel energy than many other countries. Although a growth of three per cent seems realistic, the government will find it difficult to curtail the deficit to the projected amount in 2011, given that spending on pensions, wages in the public sector, education and health in particular will continue to increase.
Another major challenge for the economy during 2011 will be the restructuring of Air Malta to steer it back to becoming a feasible and competitive operation. It is also hoped that the increased economic growth will filter down to revive consumer confidence, which many in the wholesale and retail sectors claim has been lagging during 2010. Such consumer confidence will, in itself, contribute to further economic growth in 2011.