Revelry and flowing bubbly may have drowned out the grim unemployment figures released by the National Statistics Office on New Year’s Eve.

The latest numbers for November showed that registered unemployment increased to 7,639, up almost eight per cent on the previous year.

But possibly more worrying is the trend witnessed in the 12 months to November, which showed a gradual increase in unemployment from month to month.

The figures paint a picture of a jobs market that has until now failed to take off despite economic growth that has surpassed expectations. And with leading pharmaceutical Actavis Watson and its affiliate Arrow Pharm shedding jobs at the start of the year, unemployment could very well be the most important challenge in 2014.

Economists Gordon Cordina and Lino Briguglio both included joblessness in a list of problems when asked by The Sunday Times of Malta to identify the economic challenges the country will face this year.

On the positive side, the NSO figures showed that rates of unemployment among those aged under 24 dropped slightly,bucking the European trend of high youth unemployment.

But the problems were elsewhere. There were 262 more people aged between 30 and 44 registering for work with the Employment and Training Corporation and 290 more in the over 45 category. Those seeking work for more than a year also increased by almost 600.

Dr Cordina, executive director at E-Cubed Consultants, an economic consultancy firm, believes government policy measures to encourage more people to join the labour market may cause higher unemployment as job creation will probably fail to keep up.

“There are no clearly emerging sectors of ‘new economy’ activity to spur growth,” he said.

And in existing ‘new economy’ sectors such as financial services, online gambling and software development, growth is happening but at a slower pace.

These sectors do not make up for more than 20 per cent of total economic activity, which means growth in manufacturing will be crucial to create jobs and wealth.

But this is conditioned by the state of the eurozone economy that still struggles to recover, Dr Cordina added.

On the domestic front the excessive concentration of jobs in low productivity areas “with weak future potential, such as wholesale and retail” poses another challenge, he said.

Prof. Briguglio, director of the University’s Islands and Small States Institute, also saw unemployment as a major challenge for 2014.

“Although unemployment in Malta is relatively low compared with the EU as a whole, the labour force participation rate in Malta is very low, meaning that many persons of working age, especially women, are inactive,” he said.

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600

– the increase in the number of those seeking work for more than a year

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But Prof. Briguglio put his finger on another challenge with ramifications on the job market: education.

He insisted that, contrary to popular belief, the educational system was deficient because of the large proportion of early school leavers and the low proportion of graduates.

“This is incompatible with a vibrant, knowledge-based economy,” he insisted.

Job creation may prove to be a tricky affair but there are also silver linings that can provide a reprieve.

Dr Cordina said tourism was likely to continue growing in 2014 after reaching record levels last year, creating “strong economic multipliers”.

Jobs may also be created if the government projects unveiled last year, such as the maritime hub on the shipbuilding site and major road works, get off the ground.

But there are also vulnerabilities such as the international price of food, which may further increase risk of poverty and material deprivation, Dr Cordina said.

Poverty is a reality, which Prime Minister Joseph Muscat has identified as a priority for government action in 2014.

NSO figures released in November showed that in 2012 there were almost 62,000 people at-risk-of-poverty, which equates to 15 per cent of the population. The rate soared to 20 per cent for households with children.

It is within this context that the promised reduction in water and electricity bills in March will help alleviate the burden for families.

Dr Cordina believes this move will have an impact of between 0.7 per cent and one per cent of household disposable income on the economy.

Although this was a contribution, he added, it was not a particularly strong one at a macroeconomic level.

“But for some thousands of households this difference may make a significant impact on their ability to make ends meet... while the macroeconomic effect would be minimal, the implications on risk of poverty reduction may be more important,” Dr Cordina said.

A more relevant economic effect will happen in 2015 when bills will be cut for businesses, he added.

Another challenge conditioned by EU oversight is the government’s ability to stay the course and cut the deficit as promised.

Compared with other eurozone countries Malta’s public finances are not in a crisis situation even though the spectre of the excessive deficit procedure hangs over them.

The government will try to exit the EDP in 2014 but Dr Cordina insisted it was still not clear whether sufficient resources have been dedicated towards the various measures planned to stimulate economic activity.

“Over the past years, the Budget has become a statement of good intentions, which however needs to be backed by practical implementation,” he said, adding it was also unclear whether the drive to improve efficiency that led to cost-cutting could be achieved.

But Prof. Briguglio believes public finances can be improved in the short term by adopting a two-pronged approach that includes better enforcement of tax compliance and a reform of public expenditure practices.

“At the moment every department and ministry generally retains the budget lines of the previous years and tries to add a percentage to it, as if the existing budget lines are automatically approved.

“The zero-based budgeting approach should be adopted, so each department will have to justify each item of expenditure from scratch every period,” Prof. Briguglio noted.

Economic growth will bolster the revenue side – a growing economy will give the State more cash by way of taxes. But as GDP continues to increase the government will also hope that 2014 will not be a year characterised by jobless growth.

And to avoid this it will have to ensure costs for businesses are cut and new companies are attracted to the island, creating new, meaningful jobs.