Once again the International Monetary Fund has come out with a report that speaks well of the way the island’s economy is performing in the face of the economic difficulties in a string of countries in mainland Europe.
The report does not minimise the challenges and spells out in the clearest manner possible what ought to be done, or not done, for Malta to keep to the same direction that has enabled it to fight off the worst effects of the economic trouble abroad.
When this newspaper last commented about the economy, it checked the Prime Minister for saying that his government had found a stagnant economy when he probably meant that it would be doing its best to bring about greater economic activity generally and revive weak sectors.
No one would quarrel with such aim; is this not one of the main objectives of any administration? The drift of our comment, which was generally political, not economic, in nature was that Joseph Muscat ought to have measured his words as he had given the impression that the island had been economically at a standstill before Labour was swept to power.
One correspondent took exception to our viewpoint and, in an insulting letter to the editor, spoke of our poor grasp of economics. More than that, he felt our comment was a disservice to readers. He was, of course, economical with the truth for, contrary to what he wrote, what Dr Muscat said was that he had found a “stagnant”, not a “weak”, economy, on taking over.
The newspaper was not making an economic treatise when it contrasted Dr Muscat’s comment with the fact that just three days after he made it the National Statistics Office reported that the gross domestic product grew by 1.6 per cent in real terms in the first quarter.
But the correspondent sharply pointed to the build-up of inventories and explained, in words that in some key parts happen to bear striking similarity to those used in a Colorado University macroeconomic course, that “if the economy is slowing down, the bearer of the bad news will often be an undesired accumulation of inventories”.
Is the economy slowing down or heading towards a recession? A build-up of inventories could well indicate a slowdown but there have been no mass discharges from factories as yet and neither the IMF nor the government appear to be expecting a recession round the corner. The contrary appear to be the case.
The IMF executive director for Malta gives this outlook: “The Maltese economy proved to be notably resilient since the onset of the global crisis. Authorities broadly agree with (IMF) staff’s outlook projections anticipating an acceleration of GDP in the current and coming years, mostly driven by the strengthening of domestic demand.
“Exports are foreseen to expand and the current account balance should maintain a positive sign. Inflation is expected to moderate. While taking into account the significant degree of uncertainty surrounding macro projections, we consider risks to GDP forecasts to be broadly balanced.”
There is an endless list of outstanding matters that have to be put right but it does not appear that the economy is stagnant. Again, the IMF does not declare in its projections that the island is heading towards a slowdown, or recession, at least up to its latest report on Malta, though anything can happen in an economic environment that is as volatile as it is today.