Earlier this week, the International Monetary Fund published its World Economic Outlook report. This report provides a review of the economic performance of several countries around the world and presents its opinion on the future prospects. The level of openness of the Maltese economy is such that the report is of great interest to our country. It also tells us how both our main competitor countries and our main markets are faring.

The headline figure shows that global growth is forecast to be roughly the same in 2015 as last year, 3.5 per cent versus 3.4 per cent. The growth rate in 2016 may rise to 3.8 per cent. This global number reflects an increase in growth in advanced economies, 2.4 per cent versus 1.8 per cent, offset by a decrease in growth in emerging markets and developing economies, 4.3 per cent versus 4.6 per cent last year.

What this data shows is that economic growth is expected to be moderate and uneven. The IMF believes that the same issues that have been impacting the economies of the various countries in the last years are still with us and their effects may still be felt in the years to come.

The effects of the international financial crisis and the euro crisis are still visible in a number of countries. Banks that are still carrying non-performing loans and the high level of public, corporate and household debt are slowing down economic growth and such low levels of economic growth are making the repayment of the debt even more difficult. Thus, although governments may be controlling the fiscal deficit in the short term, the level of debt is likely to remain high.

This in turn is negatively affecting potential growth, that is the way at which the economy can grow if the factors of production are fully employed. Potential growth has been slowing down since 2000 as a result of an ageing population in most of the world’s leading economies and because of an element of divestment.

The crisis after 2008 has made the situation worse because of the decrease in output and the decrease in investment. Investment may recover in the coming years but it is still uncertain whether demand, and therefore output, will return to previous levels.

One needs to add to this the decrease in the lower price of oil and the fairly large currency fluctuations that we experienced recently with the devaluation of the euro and the yen and the appreciation of the US dollar. There is also the risk that Greece will eventually default and exit from the euro. Although it is generally accepted that the ECB has been actively preparing for this eventuality, some unsettling of the financial markets is likely to occur.

The overall message is that Malta is likely to continue facing economic uncertainty in its source markets in the coming couple of years.

The IMF’s projections for Malta show that in 2015 our economy is likely to grow by 3.2 per cent and that the growth rate is likely to slow down to 2.7 per cent in 2016. Unemployment is expected to edge marginally upwards next year. Our trade in goods and services is likely to show an improvement in 2015 over 2014 and will maintain the same level in 2016.

­­­­Investment may recover in the coming years but it is still uncertain whether demand, and therefore output, will return to previous levels

Thus the local situation is not expected to deteriorate in the coming months. However, we do need to keep a watchful eye on developments abroad. Given our positive situation, it is worth considering whether we should seize the opportunity and pursue what may be termed as growth-friendly fiscal policies, make access to finance easier to stimulate further local investment, and to undertake the necessary structural reforms to raise productivity and enhance potential growth.

These measures may avoid us the pain that will occur if the risks related to the uncertainty in the international environment become a reality.