In normal circumstances, the economic outturn for 2011 should serve as a good platform for optimistic forecasts for 2011. Assuming the gross domestic product result for the fourth quarter will bring no nasty surprises, as it should not, output will have grown by a decent real margin last year. Not one high enough to make up for the squeezing in the previous two years with a comfortable margin.
Yet, at a time when most economies except that of Germany and the emerging giants are struggling to pick up speed, a margin of growth close to four per cent year-on-year is not to be sneezed at. Nor should it be a cause for unrepressed relief and exuberant celebrations. For one thing, the sectoral contributions to 2010’s growth were quite uneven.
A number of sectors lagged behind. Among others that grew, such as the financial sector, the increase was not always due to much higher domestic economic activity, in so far that it came from financial companies located here for taxation and cost considerations (plus sound regulation), but who service external demand.
Even allowing for this factor, which has to be analysed much more deeply, and also demonstrates why there remains a need for the national accounts of old, the distribution of the rewards from growth that did impact on the domestic economy seem to have been quite unevenly distributed.
The cries of pain from the majority of Maltese who respond to various socio-economic surveys taking place in rather quick succession do not come solely out of higher prices. These are on the increase, perhaps to a greater extent for those on middle to lower incomes than suggested by the national statistics, based on averages (as they must be).
A parallel point, however, is that for most social categories their real incomes are not rising fast enough, if at all, to counter the increase in prices, much less to leave a margin for an increase in the standard of living.
It is a fact that household expenditure on acquisitions of electronic goods incorporating the latest technology has been very evident in 2010, especially in the last quarter. Retailers in the sector who import the more popular brands testify to that. It is also a fact that the cost of essentials, like food and fuel, has gone up.
With 2011 still in its infancy, the cost of fuel has gone up further, making a bigger hole in consumers’ pockets and making it even harder for those who could not even heat their houses last year to do so this year. Enemalta has explained its beginning-of-the-year hikes in practically all fuel prices by referring to higher supply prices due to the rise in the cost of crude oil. That is borne out by hikes elsewhere, such as in the UK.
Nevertheless, the observation is of small comfort to consumers who are not on very high incomes and who possess little wealth, or to producers who cannot pass on the higher outlay on fuel which inevitably feeds into production costs.
These domestic considerations are not the only ones which suggest that 2010 may not turn out to be a good platform to build upon in 2011. Our exporters of goods and services, who remain the main dynamic of our economic growth, are dependent on the unfolding state of demand of their clients, who demand on the aggregate demand within their economy.
In that context, economic growth may have returned last year, though not significantly so. What will happen this year in some of our main markets remains questionable. As the Parliamentary Secretary for Tourism has also pointed out, we have yet to see how the austerity measures which are now being implemented in the United Kingdom, which supplies us with a third of our tourist inflow, will affect the demand for holidays abroad.
Other countries important to us will be passing through similar ordeals, including Italy and Spain. To take into account dark clouds such as these is not to be a doomsayer. It would be foolish to ignore the reality out there. We can do nothing to change it, and therefore have to concentrate more than ever before on factors which are within our control.
The main one is productivity. That is always a key factor in being competitive. It is now more so than usual as other exporting countries, not only tourism competitors, will be facing the same challenges we have to brave.
Another factor which needs sharper focusing is how to be innovative. It is not enough, for instance, to throw more money at marketing the Malta tourism brand abroad. New ways have to be found how to make every promotional euro count. Hoteliers, understandably, lay much emphasis on the seat-carrying capacity, which is why there is grave concern over the future of Air Malta, and over the cuts already announced in its UK northern routes. But I do not concur that available seats tend to fill up automatically.
There are bucketfuls of challenges. They have to be faced with a readiness not just to do, but to do better than we have ever done before, which probably means differently as well.