In spite of the recession, Malta had hoped to end this financial year with a modest growth rate. Such hope has now been dashed as, in the light of the impact the slowdown has been having on key economic sectors, particularly manufacturing and tourism, the government has finally had to recast its forecast to a far more realistic perspective than that it held to for a time.

The government had forecast a growth of 2.5 per cent but, in its spring report, the European Commission said the island's gross domestic product for the year was expected to contract by 0.9 per cent. Now, the government seems to have come face to face with reality, forecasting zero or negative growth.

Economic indicators for the first few months of the year do not present a cheerful picture. Unemployment is up by 1,000; exports dropped by 31 per cent in the first three months of the year and tourist arrivals fell by 14.3 per cent in the first five months. The shortfall between the government's recurrent revenue and total expenditure in the first five months amounted to €294.4 million, a rise of €58.6 million.

Very often politicians tend to take consolation in the fact that other countries are in a far worse position than Malta. Well, this is true. Latvia, just to mention one such country, is expected to end the year with an economic contraction of 20 per cent. Even so, it would be foolish on our part not to take the necessary corrective action.

For recovery to come about, much depends first on the economic situation in the markets that are of direct interest to Malta's manufacturing and tourist industries. But until that happens, the country can, at least, see how it can help key players hold their own as the government is in fact, wisely doing through direct aid, rectify shortcomings and, generally speaking, bring about a greater degree of efficiency than that the country is accustomed to at present.

As the government kicks off consultations in preparation for the drawing up of the budget for next year, it knows that it will be walking a tight-rope, particularly in view of the deadline given by the European Commission to cut the deficit in the government's finances. The deficit rose to 4.7 per cent last year and the forecast for this year is of 3.6 per cent.

Launching the budget consultation exercise, Finance Minister Tonio Fenech said he was aiming at producing a "delicate" budget. This has already been translated to mean that it is going to be a tough budget, leading one trade union to lose no time in stressing that the average worker could not take any more new financial burdens. The government is obviously very well aware of this by now, particularly following the thrashing it received in the European Parliament elections last month. With this in mind, and with the exercise to help out firms in difficulties still constituting a very important part of the country's overall recovery plan, the government will have little space in which to manoeuvre. This becomes even more apparent when considering that almost 70 per cent of general government expenditure goes on social benefits, public sector wages and interest expenditure.

In staking out claims and expectations ahead of the budget, the call this year would therefore have to be for a greater dose of realism than that seen so far in the drawing up of forecasts!