The government tackled the recession and its effects through measures intended to turn challenges into opportunities, Finance Minister Tonio Fenech told a Council of Europe conference yesterday.
The policies adopted, along with most of the decisions taken over the past few years, helped Malta weather the storm, he said, pointing out that, despite adverse conditions, unemployment in Malta stood at 6.9 per cent, one of the lowest in the EU.
Addressing a meeting of the Parliamentary Assembly Committee on Economic Affairs and Development at the Corinthia Palace Hotel in Attard, Mr Fenech said measures taken by Malta included the generation of jobs, the improvement of the country's physical infrastructure and investment in health, education and social services.
He said Malta's investment in education rose by six per cent over the past months.
"We have to remain resolute and cautious in driving our country's economy out of the woods. This is the concerted effort and commitment of every European state. Malta is no exception. We have to be resolute in seeking sustainability in all our efforts to secure sustainable recovery and growth," he said.
Central Bank Governor Michael Bonello gave an overview of the Maltese economy and how it fared during the financial turmoil.
He said the downturn was particularly pronounced in tourism and manufacturing, two sectors highly dependent on demand abroad. Tourist arrivals declined by 8.4 per cent in 2009 and the manufacturing industry's gross value added fell by more than 18 per cent.
On the upside, several service activities that had expanded thanks to access to the single market proved quite resilient to the global recession. Their performance helped the external balance on goods and services to move into surplus for the first time since 2002, he said.
Mr Bonello said forecasts by the Central Bank anticipated GDP growth of 1.1 per cent this year and 1.7 per cent in 2011.
Inflation, he said, was also projected to remain subdued at about two per cent but would still be somewhat higher than the euro area average. Similarly, compensation per employee was forecast to rise by some two per cent.
"As this increase in nominal wages is more reflective of inflation developments rather than productivity gains, it could put pressure on cost competitiveness," he said.
With regard to the internal imbalance, Mr Bonello said the events of the last two years brought to a halt the substantial fiscal consolidation that was achieved in the run-up to euro adoption.
The deficit had been reduced from almost 10 per cent of GDP in 2003 to 2.2 per cent in 2007. However, it widened in 2008 and 2009 and the latest European Commission projections suggested that the shortfall would increase further to 4.3 per cent this year, before declining to 3.6 per cent next year.