This is the third and final part of a series of contributions about the way the Maltese economy is changing. The basis of these contributions is a set of economic indicators published by the National Statistics Office covering the years 1995 to 2003.
The first two contributions essentially showed an improved position for the factor of production referred to by economists as labour, and an economy that is becoming more and more open. This third contribution will deal with the structure of the gross domestic product (GDP), the economic wealth created by the country.
The indication that emerges from this assessment is that the Maltese economy, despite its positive performance, is still relatively vulnerable in that in certain respects it is proving to be dependent on a fairly reduced number of segments.
The GDP increased by 49.5 per cent in nominal terms, that is before accounting for inflation, between 1995 and 2003. In real terms, that is after accounting for inflation, it increased by 23.9 per cent. However, we have had negative growth in two of the last three years, reflecting a very difficult international economic situation. In fact, while the international economic situation was positive during the years 1995-2000, Malta had an average annual growth rate of the real GDP of 4.5 per cent. In 2003, the GDP was at levels just below those of 2000.
The NSO data provides information on the structure of the GDP split into consumers' expenditure, government current expenditure and gross fixed capital formation (investment).
Consumers' expenditure represented 61.1 per cent of the gross domestic product in 1995 and now represents 65.6 per cent of the GDP. It increased by 32.9 per cent in real terms during this nine-year period. The growth pattern has not been consistent, even if there have been increases every year. However, the indications are that the growth rate is slowing down.
On the other hand, the share of government current expenditure has decreased from 20.5 per cent to 19.9 per cent between 1995 and 2003. The government's current expenditure increased by 20.3 per cent in real terms during this period. The growth pattern has been erratic; in some years there has even been a decrease of this item in real terms. In 2000, it hit just 17.7 per cent of the GDP. The indications of the last years are that the share of GDP represented by government current expenditure is increasing.
The third component of the GDP is gross fixed capital formation. The trend of this indicator has been highly erratic, very often reflecting decisions made by a few firms. This makes it difficult to identify any definite trend. Up to a certain extent, this shows the vulnerability of the Maltese economy because of its smallness and hence the consequent dependence on decisions made by the few rather than by many.
Gross fixed capital formation decreased from 1995 to 1998, then increased in 1999 and 2000 and after that fluctuated yearly. Over this nine-year period it represented an average of 25 per cent of the GDP per annum.
The NSO data also breaks down gross fixed capital formation into two components: construction and machinery. Investment in construction has generally been on the increase with the exception of three years, namely 1997 to 1999. On the other hand, investment in machinery fluctuated over the nine-year period. One trend that did emerge quite strongly in the last three years has been a net rundown in stocks held in general in the economy.
The NSO data also provides highlights of the annual growth rate of the manufacturing sector, the services sector, the agriculture and fisheries sector and the construction sector. The two key motors of the economy are the manufacturing sector and the services sector. The services sector experienced positive growth rates yearly, while the manufacturing sector experienced positive growth rates every year with the exception of 2001.
This discussion on the manner in which the Maltese economy is changing should not be limited to one-off events like the publishing of data by the NSO.
Sometimes it seems that the debate on the economy in this country becomes intense only in times of crisis. An open and sincere debate on the Maltese economy requires us to watch the changes taking place so that we may be able to take preventive rather than corrective action.