Both the Prime Minister and the Finance Minister are usually very selective when they come to speak about the island’s economy. In their reaction to foreign reports about Malta’s economy, they invariably latch on to assessments and projections that are most favourable to the country, leaving out remarks or warnings that may not go down well or which could deflect attention away from the positive aspects of the reports.

There is indeed a great deal that is positive in recent reports about Malta’s economy, but there are also matters that could create difficult challenges unless they are tackled with some degree of urgency. Taking the islands’ economic outlook first, the latest report by the credit rating agency Standard and Poor’s agrees with the European Commission’s country report about the advances being made in economic expansion, even though S & P projects a somewhat lower rate of growth than the European Commission.

According to the country report, the economy is expected to continue expanding in 2015–16 at roughly the same rate as that registered last year, 3.3 per cent, whereas Standard and Poor’s expects growth to be close to three per cent on average in 2015–2018. In any case, it believes the economy will continue to outpace the eurozone as a whole, notably, it holds, because of investments in the energy sector.

This remains to be seen but, clearly, there is broad agreement that the economy is performing well. However, the agency insists, as other agencies and organisations have done, that unless further reforms in the pension and health care systems are made, public finances will become strained.

There are other worrying points, such as the banks’ non-performing loans, which rose to 9.1 per cent as of March this year. Even though the banks’ aggregate loan loss provisioning rose to 42 per cent as of September 2014, the agency still believes that this is low and that the issue remains a challenge to the economy.

But what ought to be brought to the forefront of the country’s economic agenda is the agency’s warning that “the nominal unit labour costs have been increasing at one of the fastest rates in the euro area, posing risks for competitiveness when many euro area neighbours are undertaking structural reforms and internal devaluations.”

The EU country report had made the same warning when it said that unit labour costs had increased more dynamically than in competitor countries, reflecting both higher domestic inflation and contained labour-cost developments in the competitor countries. It had earlier noted that price inflation is higher than the average in the euro area.

When Malta still has a long way to go before reaching the living standards obtainable in other EU countries, it will be difficult to suppress workers’ just expectations for improved earnings, more so when the economy is doing so well. So, if competitor countries keep containing costs in these difficult times, Malta stands to lose in competitiveness if it keeps raising unit labour costs.

In these circumstances, cutting the energy costs for industry, as the government has done, may not even be enough to compensate for other increased costs. There are other areas that require attention, such as, for instance, loss of export market shares and sluggish productivity. For the country to keep up the current rhythm of development it is registering now, it would have to go into these problems as well.