If all the applications for the construction of high-rise buildings go through, Malta’s economy is likely to continue growing at a rate that will keep it among the front runners in the European Union for quite some time. These projects are not expected to take off overnight but if they do the multiplier effect will be substantial. Whether or not their construction will justify changing the face of the localities where they are planned to be built is another story.
Right now, the economy keeps doing so well that it is earning the plaudits of the credit rating agencies. And the latest autumn report from the European Commission confirms that, with economic sentiment still above the long-term average, the pace of growth is projected to remain unchanged in the second half of the year.
However, after climbing to 6.2 per cent last year, the Commission is forecasting that the gross domestic product will glide down to 4.1 per cent this year and to 3.7 per cent in 2017 and 2018. Based on these figures, Malta’s economy will still be classified among the fastest growing in the euro area.
Brussels expects private consumption to remain the main contributor to growth, reflecting rising disposable income, a growing population (mainly on the back of foreigners seeking employment here) and a decreasing saving rate (not exactly something to be encouraged).
It also expects that, following the construction of a new power plant, private investment will remain strong. This is good news so long as such private investment does come about.
Of course, the report does not go into the controversies surrounding the power plant project or into whether or not the country actually needs all the power generation capacity it will have when the new facility is commissioned. Nor does it mention the power purchase agreement that is before it for approval.
While services are projected to be the main driver of exports, goods exports are expected to contract this year. What is this? How healthy is manufacturing industry? For quite some years now, stress has often been laid on the expansion of the services sector, with some lines, like iGaming, making a significant contribution to growth. Aviation has the potential to expand even further. As Malta can hardly depend on the sale of passports, or the growth of the construction industry, forever, the need to expand this and other profitable sectors becomes increasingly pressing.
The shift to services and the inflow of foreign labour have changed the employment landscape. Maybe it is time now to give greater attention to manufacturing industry and to a helping hand to firms struggling to keep competitive. Reducing unnecessary bureaucracy and costs will help. According to the latest figures, industrial consumers were paying the fifth highest electricity prices in the EU during the second half of last year.
A call on the government to once again reduce the energy tariffs was shot down, with the Prime Minister saying the only person that had expected a reduction was the Opposition leader. He was wrong as, with the price of oil still down, most people, and industry, expected a tariff cut. According to the Malta Chamber of Commerce, Enterprise and Industry, Malta is the only EU member state where commercial rates are higher than domestic.
When the economic growth rate is expected to glide down and to have a soft landing, to use the European Commission’s words, it is wise to guard against overconfidence and complacency.