George Bernard Shaw once said Malta was the nicest heap of stones he had ever seen. What would he say of the island were he still alive today?
With construction fast eating up the little open space in the concrete jungle that has disfigured much of the country’s face over the past half century, environmentalists are unlikely to share the finance minister’s enthusiasm of an upturn in the construction industry.
Yet, the minister can hardly be blamed for feeling satisfied at the upturn, for construction has always been an good contributor to growth. Therefore, in this respect only, the upturn is, as the minister said, a most welcome indicator, though he could have done away with the “most”.
The minister was reacting to news that the economy grew by 3.5 per cent in the first quarter this year compared with the figure for the first quarter of 2013. It is early to say what the final outturn will be, but if no economic shocks emerge in the intervening period, there is no reason why Malta should not maintain this growth rhythm and meet the projections.
The European Commission sees Malta’s growth outlook as robust, a matter over which the country ought to be pleased. However, as is usually the case with anything positive, there is another side of the coin.
In the announcement of the rise in gross domestic product for the first quarter, the National Statistics Office said that growth in value added was, in fact, mainly generated by public administration and defence, social security, education, health and social work activities together with professional, scientific and technical activities as well as administrative and support service activities.
The not-so-good news, of course, is the drop in gross value added reported in manufacturing and in financial and insurance sector. Public investment projects, which may explain the upturn in construction, help step up economic activity but it is worrying that there is now a drop in value added even in financial services. The minister would have done well if, after expressing satisfaction at the improved performance of the construction industry, he explained the reasons for the drop in value added in these two sectors. In the case of trade, exports are down too.
Industrial production in April dropped by 12.8 per cent over April last year. If one were to base the outlook on the European Commission’s spring forecast, net exports are expected to continue to make a further negative contribution to gross domestic product this year. According to the latest Eurstat figures, exports in the first quarter were down 24 per cent. In fact, Malta had the sharpest fall in exports in the European Union.
The spring report forecasts a significant contribution from household consumption due to both positive labour market conditions and the drop in energy tariffs. But it remains to be seen to what extent the cut in energy tariffs will contribute to such consumption as many may be inclined to save a bit of the extra money available.
When countries hit by the financial crisis are now emerging from the recession, fit and ready to pick up from where they had left off, it is somewhat depressing that Malta seems to be on the losing end in terms of export trade. While the GDP rise is a positive sign, the country needs to take greater care of manufacturing industry to help ensure a diversified economic base.