Having fallen throughout the first three quarters of 2009 Malta's real GDP has up to another 12 months of decline before it starts to recover at a slow pace. The first assertion is a matter of fact, according to the National Statistics Office. The second is a consensus forecast made (separately) by independent economists of repute (Joseph FX Zahra and Joe Vella Bonnici), and by the Prime Minister, who would have based himself on the advice given to him by the Economic Planning personnel and, possibly, by the Central Bank.
The bad news of a continuing recession is always couched in comforting terms - we are on a downward trend, but are not doing as badly as the rest of the eurozone. Certainly not as badly as Ireland, for instance, which has just introduced a budget designed to squeeze the pips so much that a lot of them will surely crack.
One of the Irish delicacies that will go off the menu is their fabled social compact. The unions are up in arms and considering their position in the context of government plans to cut public sector pay. Whether they will be able to offer a workable alternative designed to roll back sharply the massive fiscal deficit and borrowing requirement is another matter.
In Malta we are not in such dire circumstances but other people's miseries do not make us forget our own. The Maltese economy is hurting. We are proving the observation that we go into recession after others have done so, and start to recover later too. We are an open economy heavily dependent on exports of goods and services. These feel the drop in external demand with a lag, and will similarly feel any recovery in demand with another lag.
The question is, when will external demand recover? Several of our export markets stopped declining and began turning around slowly (where that did happen, as in the UK) mostly due to car scrappage schemes and to other one-off measures taken to stimulate the economy. Increased domestic consumption and restocking fed into those countries GDP calculations. They are also being helped by the acceleration in China's growth, where the recession meant a slowdown in the growth rate, not an absolute decline.
What matters to Malta's economic operators is the extent to which external orders will recover. Whether they will do so enough in the up to the third quarter of 2010 to enable the predictions referred to above remains to be seen. One possible obstacle to that lies in the observation that the recovery in most countries to which we sell goods and services is not employment-led.
Meaning that a return to (slow) positive real growth will not see many of the jobs lost during the recession being reinstated, or new ones created. Productivity will thereby rise, which will be great for our markets, but not so great for those which export to them.
In our case that will have particular significance when it comes to tourism.
If high unemployment persists in our main markets, especially the UK and Germany, that will not be good news for our tourist industry.
So where will the recovery in our growth come from? It remains impossible to forecast consumption trends. The government will be running another high fiscal deficit. That is expected to create few new jobs and, to the extent that capital projects do materialise, they will suck in imports, which are of course a negative in the GDP calculations.
The same goes for private consumption. With unemployment still rising and uncertainty about some existing jobs, people will tend to rein in their spending and give more focus to savings. Unlike Singapore no group of newly rich has sprung up in our midst which will be able to boost consumption, aside from the fact that even if there was one to do so import leakage would be high.
In other words, while we all hope that the recession will flatten out and a recovery starts by September next year, the prospects are less than auspicious. This is not a political issue and it would be wrong to turn the situation and the effect of external factors into a partisan debate.
Where a political factor does come in it has to do with public sector efficiency. Now more than ever it is essential that unnecessary bureaucracy be flushed out of the public system. Bureaucracy holds up decision making and implanting by the private sector. And it is that sector which, in small rather than big ways, can give a boost to the economy if it is able to bring into play plans for refurbishment, repositioning and, possibly, expansion too.
The Budget speech undertook to address that factor. It had better do so without delay to bridge the hopefully temporary gap between higher external demand and local output.