This week started with great turmoil in the financial markets. All major stock exchanges experienced a downturn in the value of equities which has not been insignificant. One could really claim that if this start to the new year was to be a reflection of what is going to happen in the next 12 months, then we are really heading for a disaster. Those that value their investments at the end of the calendar year heaved a sigh of relief that this downturn happened at the beginning of the year and, as such, there is enough time for them to recover.
Accompanying this downturn in the value of equities has been the fall in the value of the euro which made the European scenario look worse than the rest. What caused this situation have been two factors. The first is the drop in the price of oil to US$50 a barrel. The last time the price of oil was so low was in 2009, in the midst of an international economic recession. Financial markets got worried because the low price of oil was interpreted as a sign that the world’s leading economies could be going back into recession.
The second is the possibility of a victory at the Greek elections due soon of the radical left party. This party is very much anti-euro and so financial markets are fearing a Greek exit from the euro. The fear of a Greek exit from the euro became even more real as it appeared that Germany was no longer worried about such an occurrence, even if the official position is still one which favours Greece’s continued participation in the eurozone. It has been this possibility of a Greek exit from the euro that has pushed down the value of the currency.
The secret is whether we are capable of exploiting the opportunity presented to us by the lower price of oil and the possibility of a Greek exit from the euro
However, I would like to be a voice outside the proverbial chorus. Excluding the impact on the financial markets, for a stable economy such as ours, should the low price of oil, a fall in the value of the euro, coupled with low inflation and low interest rates worry us as a country?
Considering that Malta imports all its energy needs, would not a fall in the price of oil be of benefit to our economy as it should result in lower energy costs? It would boost businesses as their costs would go down and households would enjoy an improvement in their purchasing power. Air Malta would also benefit greatly as fuel has a big impact on the airline’s cost base.
Equally, a fall in the value of the euro would mean that our exports of goods and services to countries outside the eurozone would be cheaper. This should benefit tourism, manufacturing, as well as that segment of the services sector that is foreign market oriented. The competitiveness of our businesses should improve as a result of a fall in the value of the euro. Admittedly, imports from outside the eurozone should become more expensive. However, most of what we import, excluding fuel which has in any case gone down in price, comes from the eurozone.
Low inflation and low interest rates have been with us for quite some time and may remain so in the next couple of years. Both can be a boost to economic activity. Low interest rates should serve as an incentive to investment, while low inflation tends to remove an element of uncertainty. Therefore, all in all, the developments of this week should be seen as an opportunity for our country.
The secret is whether we are capable of exploiting the opportunity presented to us by the lower price of oil and the possibility of a Greek exit from the euro. Shall we be capable of attracting new investment in productive activities (not real estate, please!)? Shall there be a stronger consumer sentiment? Shall the tourism sector perform better? Shall we create new export-oriented activities?
It would be very sad indeed if we were to let this opportunity pass us by, as one day we may live to regret our inertia.