Economic growth hit a historic high of 6.3 per cent last year but not everyone can read that figure and rub his hands in glee. Kurt Sansone reports.
Economy buffs had been waiting for the GDP figures for 2015 with anticipation as growth was expected to be significantly higher than the eurozone average.
Quarterly figures last year were already pointing at a remarkable five per cent growth rate but when the National Statistics Office released the numbers for the whole year last Tuesday, the result was astounding.
With real GDP clocking off at 6.3 per cent, it was beyond even the most positive predictions. In 2014, the economy grew by 3.7 per cent and, a year earlier, it ticked off at 4.1 per cent.
Prime Minister Joseph Muscat described it as “a historic high”.
The excitement is not misplaced. It comes at a time when other EU member states are struggling to see growth take flight.
For veteran economist Karmenu Farrugia, 6.3 per cent is “fantastic growth” but, more importantly, it comes on the back of the government’s drive to reduce the deficit.
“It would have been easy to increase GDP by borrowing more but the Finance Minister has been doing the opposite. He has cut the deficit and, as a consequence, borrowed less, which makes the result all the more significant,” Mr Farrugia says.
He does not expect this growth rate to be maintained, insisting anything above the three per cent mark is a bonus. Mr Farrugia says the economy has experienced a “windfall” that was harnessed by the government.
Higher growth should reflect itself in better wages and pensions but it should also lead to higher social benefits for those who depend on them
Since 2013, the government has used the Budget as an economic tool, as much as a financial exercise, by introducing measures that have enabled the jobs market to grow and leaving more money in people’s pockets. Other measures, including the Individual Investor Programme and the removal of stamp duty for first-time buyers, have jolted the real estate market and the construction industry.
But economist Philip von Brockdorff, head of the economics department at the University of Malta, also points at the private investment in the new gas power station as a contributing factor to the higher than expected growth. With an investment of some €300 million, he says, the impact is significant.
“This is the difference between us and bigger countries. An investment like that in Spain may have had regional repercussions but, given our small size, it resonates on all the country,” he notes.
Tourism, which has also been performing at record levels, he says, benefitted from the precarious situation in North Africa and, to some extent, the Middle East.
However, the rosy picture has its downsides as well. Dr von Brockdorff says hoteliers may have experienced increased profits but wages in the sector remain static and among the lowest.
He points out the significant growth in the I-gaming and financial services sectors, which now account for 10 per cent of GDP. The problem with these sectors, he says, is that the benefits are often restricted to a group of people.
“I-gaming may have a subsidiary positive impact on real estate as a result of foreign workers seeking accommodation but, otherwise, the trickle-down impact is not as big,” he says.
The picture remains hazy for manufacturing, which has a much bigger multiplier effect on the economy. The sector registered a slight drop of 0.4 per cent in gross value added.
Although Malta was not as hard-hit as other countries, it has suffered the same fate with higher poverty levels being recorded
The warning signs have long been present and Dr von Brockdorff believes the time is ripe for “redimensioning” the manufacturing sector to ensure it remains an important segment of the economy.
“The sector has to move away from the large firms towards smaller companies employing around 100 people with their own research facilities that help them tap foreign markets,” he says.
But while the economy has flourished not everyone in society has felt the impact.
Dr von Brockdorff points out that, since the 2008 global financial crisis, income inequality across the EU increased.
“Although Malta was not as hard-hit as other countries, it has suffered the same fate with higher poverty levels being recorded.”
He says the economic “adjustments” that took place across the EU hit the working classes and pensioners hard, leaving many unable to cope with monthly expenses.
Unemployment in Malta has been on a downward trajectory for the past two years, reaching historical lows as more people took up productive jobs.
And, yet, there are still many who cannot make ends meet. For these, economic growth of 6.3 per cent is little consolation.
Charles Miceli, an anti-poverty campaigner with Alleanza Kontra l-Faqar, says the onus is now on the government to ensure economic growth translates into better living conditions for everyone.
“I agree with the General Workers’ Union and the Forum of Trade Unions that higher growth should reflect itself in better wages and pensions but it should also lead to higher social benefits for those who depend on them,” he says.
Official figures show that 14,685 people received food packages last month as part of a new EU food aid programme for Malta’s most deprived.
The country has to guard against the situation present in so many industrialised countries where the top one per cent have all the wealth while the remaining 99 per cent are left to watch from the sidelines, he adds.
People on social benefits must not depend on a packet of pasta given to them every three months, he says. “These people have to eat every day and pay the rent every month. I am happy the cake has grown but now it is the government’s job to ensure that everybody gets to share it.”
The government has consistently justified its course of action by insisting the economy had to be the driving force behind better living conditions. The Prime Minister has, on more than one occasion, pointed out that not everyone has benefitted from economic growth and the government would take corrective action.
In-work benefits were introduced for low income families last year. Single mothers were also given the option of not losing their benefits at one go if they found work. Basic pensions were increased for the first time in more than two decades in the last Budget, a move, which, however, still leaves the minimum pension well below the 60 per cent of median income as suggested by the EU.
These measures have helped alleviate inequality but are clearly not enough. While a booming economy gives hope, for some, better redistribution of wealth cannot come too soon.