When the bosses of the largest car companies in the United States flew to Washington in private jets to press their case for a bailout, they created what will possibly go down as the worst public relations exercise in their companies' history. Their thoughtlessness typified a characteristic trait prevalent also among the higher ranks of the banking system and which, together with greed, led to the bursting of the sub-prime bubble. The knock-on effects of the financial trouble, and of the recession which this has created, have spared no country and Malta is, of course, no exception. Up to the third quarter this year, however, the impact does not appear to have been too great as gross domestic product in fact rose by 2.2 per cent.
As expected, Prime Minister Lawrence Gonzi grasped the significance of the rise and in a good public relations exercise he wisely referred to it when he spoke to businessmen at a meeting in Prague. Still, even though he was speaking to a foreign audience, he struck a note of caution, saying that, despite the rise, one could not be complacent. Indeed, there is, or should be, hardly any need of a wake-up call for Malta not to be complacent. With the kind of open economy it has, it can hardly expect to escape unscathed in the financial turmoil that has given so much worry to so many governments. Growth next year is now expected to be less than two per cent, lower than the forecast made in May by the International Monetary Fund, when the prices of crude and commodities were still very high.
The European Commission, too, has forecast an economic downturn for Malta, though it has qualified its assessment by saying that the island is expected to come out of troubled economic times quicker than the majority of other EU member states. A fall in demand will hit manufacturing industry and some firms have already been experiencing the problem, as shown by the immediate impact which a drop in the sales of cars on the continent has had on local manufacturing firms supplying components to the car makers. Tourism, too, is expected to be hit.
On the bright side, however, the financial services sector has continued to grow. In its last quarterly review of the economy, the Central Bank said services were "important drivers of growth" and Finance Minister Tonio Fenech said the other day that the financial services sector remained "the hallmark of the success being achieved by our economy". Despite the financial turmoil abroad, the sector was continuing to raise its contribution to economic growth and job creation, a matter that may not be fully realised by the man in the street whose perception of growth is generally linked directly to manufacturing.
The government is forecasting that the financial services sector will contribute up to 25 per cent of gross domestic product by 2015. Growth of this sector, and of others, is gradually helping to reshape the make-up of the island's economic set-up, a far cry from the early stages of the island's economic diversification programme. Much will now depend on the extent to which the island is able to meet the impact of the recession. The government is striking a confident note and has backed this with an economic stimulus programme to help out as much as it can. Hopefully, this will be effective enough to cushion the impact until the rhythm picks up again.