Joseph Muscat is euphoric over the European Commission’s spring report forecasting a robust growth outlook. It is good news for his government, very conveniently coming on the eve of the May 24 European Parliament elections, but worrying signs are emerging, such as the fall in exports. And Central Bank Governor Josef Bonnici has just warned that the economic forecasts would not be reached unless the lending growth rate is stimulated.
As expected, the Prime Minister lost no time in making political capital of the EU Commission’s forecast, and, in truth, no politician in his place would have let such a golden opportunity go by without making the most of it. Dr Muscat was even reported saying: “Though we are not surprised by the Commission’s forecast, we are also working to surprise the Commission by achieving even better economic growth than the one predicted by Brussels.”
Government politicians often come across as if they want to take all the credit for any improvement in the economy, seemingly forgetting that it is the country that brings about higher economic growth. This administration may have injected a fresh dose of confidence in the economy through planned new projects and reforms, but there has been no drastic change in the country’s overall economic direction.
The Labour government is wrong when it tries to give the impression that it is starting from scratch. This is far from being the case. The fact that the country had weathered one of the worst financial crises and recessions in living memory is proof of its resilience, a point that has been repeatedly made by practically all the important economic agencies. But the Labour government conveniently forgets this as it wants to take all the credit itself. The Nationalists have been weak in not making their case over this matter strong enough.
With the deficit being brought down to below the three per cent threshold, as required by EU rules, the government is now obviously anxious to have the excessive deficit procedure against Malta lifted.
As to growth, the report said that, at 2.4 per cent last year, this was higher than anticipated. It said “growth was reported to have been driven by significant accumulation of inventories and a pick-up in private consumption. These factors more than offset a weak export performance, owing to a sharp fall in exports of electronic goods.”
Since the Commission is forecasting a robust growth outlook, it would seem the inventories have been built up to meet a surge in demand.
Latest trade figures for the first quarter are very worrying, with both exports and imports down over those for the first quarter last year. Exports of electronic goods have fallen sharply, a matter of concern when considering the importance of this segment to manufacturing industry.
When it goes into the investment outlook, the Commission makes a specific mention of the planned building of a new power plant and says that delays in this project pose a downside risk to growth projections.
There are other challenges that would need to be taken up in greater earnest besides the need to attract a greater inflow of foreign direct investment and revive exports. Unit labour costs have to be kept in check and unnecessary expenditure reduced. There is need to ensure the sustainability of the welfare system; to put public transport on a sound footing and promote greater efficiency all round.