In the midst of so much gloom, austerity measures and freezing temperatures on the continent, it is not out of place to inject a dose of realism in a situation where the contrast with what is happening in nearby countries, including Italy, could not be sharper. As Europe shivers and snow brings so much chaos in air and land transport as well as in other areas of economic and social life, Malta is basking in spring weather. Many would give anything to escape to a warm place like this, even if only for a few days.
Not only is Malta’s weather mild but the latest economic news continues to show the economy has been doing rather well in the circumstances. Growth for the September quarter may not have been up to the level of the previous quarter but, at 3.6 per cent, it is encouraging as well. Even more encouraging is that this has been the fourth successive quarterly growth. The problem now is that those with a pulse on the economy are forecasting a slowdown in the early part of next year.
According to the latest report issued by the International Monetary Fund, momentum is expected to fade. When it commented on the cyclical upswing, it said the recovery was not, as yet, broad based and some sectors were lagging behind. Ernst & Young too are forecasting a slowdown: “There will be a slowing in economic growth in the early part of 2011 as the boost from public spending and net exports fades.” It expects growth to average 2.1 per cent in contrast to the government’s forecast of three per cent.
As regards the deficit, it expects it would still be 3.8 per cent of gross domestic product next year. With public debt officially put at 69 per cent of GDP, any overshoot of the deficit will incur renewed EU calls for tougher action to curb public spending. Will the government be able to keep to its Budget deficit targets? For this year, at least, the European Commission expects it will widen to 4.2 per cent, higher than the figure forecast by the government (3.9 per cent), mainly due to growth of primary expenditure outpacing that in tax collection.
New pressures in the shape of financial outlays that would necessarily be involved in the restructuring of Air Malta will naturally add to the difficulty in meeting targets. And if the European Commission’s arguments over what it sees as the illegal deduction in contributory service pensions of former British servicemen are upheld, another unforeseen financial allocation would have to be made. The Commission has issued an infringement notice against Malta following a four-year investigation on the basis of a petition presented by a former British serviceman in 2006. The Commission is backing former British servicemen in their argument that, once their service pension was contributory, it should have never been deducted from the normal national insurance pension in the first place. So, the situation is not exactly plain sailing. In reality, it rarely is, but it does seem the government has so far been handling the situation rather well.
Of course, there are always weak areas that would need to be taken care of but the fact that the island has managed to make a recovery that is stronger than expected should, at least, give added confidence to the efforts being made for the country to move ahead.