The National Statistics Office recently published the set of structural economic indicators for the first quarter of this year. It also published the data on the gross domestic product for the second quarter of this year. The data on the gross domestic product should have settled the issue as to whether the economy is in a recession or not as GDP in real terms increased by over two per cent in the second quarter of this year, compared to the second quarter of 2004. However, I think it would be a disservice to all if we seem to be concerned only about GDP growth or whether the economy is in recession or not.
The overall performance of the economy is important but more important is the performance of the various components of the economy and a number of economic indicators. Each of these should give an indication of the state of the economy and the way the economic barometer of the country is pointing. Thus, it is a positive result in itself that we had a growth of the GDP of 2.4 per cent in the second quarter of this year, and that growth in real GDP per capita was around 1.5 per cent but it is more positive that there was growth in output across all industries with the exception of electricity, gas and water supply.
Moreover, when measuring GDP using the expenditure method, one notes that household consumption expenditure and general government final consumption expenditure decreased in real terms, while investment expenditure increased by 10.2 per cent in real terms. This is an indication that the growth in the economy has driven mainly not by short-term expenditure, which gives economic growth of a transient nature, but by long-term expenditure in wealth creation activities.
A further positive development is that the increase in investment expenditure has been less in construction and much more pronounced in equipment.
Supporting this growth in GDP is the growth in employment. In this area we have had to face some difficult times especially in the light of a process of restructuring that happened in our economy and in particular in those enterprises that have encouraged some of their employees to take up voluntary redundancy. This had meant a drop in the total number of persons in employment.
The NSO data up to the end of the first quarter shows that we have had eight consecutive months of increases in the number of full-time employees. The private sector now represents 66.7 per cent of total employment, compared to 62 per cent 10 years ago.
A worrying feature of the economy is the size of the balance of payments deficit and how this relates to the gross domestic product. It needs to be stressed that the current account on our balance of payments is perennially in deficit because of our dependence on imports. We do make up for our extensive dependence on imports to a significant extent through our exports of goods and services.
However, the increased competition that companies operating in Malta are facing with the subsequent downward movement in the prices of our exports have contributed to a widening deficit. Negative net transfers have done the rest. This external deficit now represents 10.1 per cent of the gross domestic product for the whole of 2004 and 13.8 per cent in the first quarter of this year.
Inflation is still within sustainable levels, although it is on the increase. The 12 months' moving average reached 2.83 per cent at the end of March this year compared to 1.75 per cent a year earlier. In fact, we have been experiencing a very gradual but steady increase in inflation since March last year. This is itself a negative aspect of our economy because there could be the start of an inflationary spiral. However, the openness of our economy and the need to compete with outside world will prevent this from happening.
Overall, the economic barometer is pointing towards fair with an element of variability. The extent to which we can contain this variability will determine how long-lasting the growth in the economy shall be. It is imperative that we sustain the level of economic growth because this in turn would make the fiscal deficit more sustainable. This is why we need to keep in view not just the magical figure of GDP growth but also other economic variables that drive GDP growth.