A credit rating agency, Standard & Poor’s, believes that Malta’s economic growth prospects remain strong, relative to its EU peers, but it put forward two caveats, even though these may be considered somewhat hypothetical.

The first is that it could raise its ratings if the reform programme boosted growth and reduced the debt burden more quickly than it expects at present, without a return to significant current account deficits; and the second, that it could lower its ratings if fiscal slippages increase the government’s net debt burden.

Negative pressure, the agency said, could also build if Malta’s large financial sector were to experience sizable disinvestment or weakening access to external debt and deposit financing. Both caveats seem self-evident but the in-built messages they carry are all too clear to those who follow the ups and downs of the country’s economic performance.

Raising growth and reducing the debt burden are no light challenges, as successive administrations know. To its credit, however, the government is doing its best to expand possible growth areas, such as the maritime sector. Tourism, the financial services and gaming sectors have shown good results but manufacturing is not doing so well. Standard & Poor’s is expecting manufacturing industry to pick up but others are not so confident.

The expected improved performance of the microelectronic industry is most welcome as this is one of the most important segments of the industry. But other segments are not faring well, or well enough. According to the European Commission, net exports are expected to continue to have a further negative contribution to gross domestic product this year and Eurostat has reported that exports in the first quarter plunged by 24 per cent, the sharpest fall in the EU.

Findings of business and consumer surveys in the latest quarterly review of the economy published by the Central Bank corroborate these assessments and, also, what the Chamber of Commerce, Enterprise and Industry said recently about the fall in export orders. The industrial confidence indicator remained in negative territory in the first quarter this year, moving below its long-term average. This was mainly attributable to a deterioration in production expectations.

A higher number of respondents expected orders to fall and production expectations and order book sub-indicators stood below their respective long-term average. All this does not present a very encouraging picture, a matter that ought to be taken up at national level to see how industry can be put back on track. The services sector is important in the new set-up of the Maltese economy but it would be wrong to sideline manufacturing because it could still make a good contribution to growth.

The problems being faced by manufacturing industry have to be faced now, with the matter of costs taking top consideration. According to the Central Bank, the rise in unit labour costs in Malta was more rapid than in the euro area as a whole. This implies, it said, a weakening of the island’s competitive position within the single currency area, an issue that we have been highlighting for some time now. Of course, there are other costs that are rising as well.

Seeing to problems industry is facing now ought to be part of the overall exercise to revive the sector. It is naturally very important for the government and all its local and foreign agencies to keep up their efforts to bring in new foreign investment from Europe and elsewhere, including China, but it would also need to look at industry’s urgent needs.

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