The data recently published by the National Statistics Office on the gross domestic product continues to show that so far, Malta is managing to withstand the pressures that the slowdown of the international economy is presenting.
The data shows that we have recovered from the negative growth we had last year, and we have an economy that is growing at the rate of 2.2 per cent per annum in real terms (that is after accounting for inflation). The comparison is being made between the second quarter of this year and the second quarter of last year in order to avoid seasonality issues.
There are two additional riders that need to be mentioned. The growth in nominal GDP between the second quarter of 1997 and the second quarter of this year has been of 26.7 per cent. This is a strong performance, but in spite of this, it has already been stated that in order to reach a level of GDP that comes close to the average in the European Union, it could take us something like another 75 years.
The extent to which we can manage to sustain this growth rate in the immediate future still remains to be seen as there is no definite trend emerging on the economies of our major markets for exports of manufactured products, tourism and inward investment.
However, there should be no doubt that this growth is really there and is not based on perceptions or optimistic statements. It is important to highlight this issue as all too often we fall prey to the syndrome that the grass is greener elsewhere and form opinions on the basis of statements that have no basis of fact at all.
Not only is this growth rate for real, but our growth rate compares well with the growth rates of competitor economies. This is not something new as when we had the first signs of the slowdown last year, our decrease in the gross domestic product was less than that of economies which we are told to emulate.
For example, the Czech Republic had a growth rate of 2.5 per cent in the second quarter of this year, while the Polish economy grew by 0.8 per cent. Mexico's and Turkey's GDP (two countries that have recently become very aggressive in attracting foreign direct investment) grew by 2.1 per cent and 2.3 per cent respectively.
And none of these depend on their exports of goods and services for their economic well-being to the extent that we do.
Another issue is the contribution of the various sectors and components to the gross domestic product. A number of interesting aspects emerge from such an assessment.
A very important one is the contribution of the wholesale and retail trade. This is important as it is seen as a measure of the purchasing power of the Maltese. The more we spend, the greater the contribution of the wholesale and retail sector, either in terms of employment income or in terms of profit.
Well, this sector grew by 7.3 per cent with the substantial part of this growth coming from increased profits. So the claim that the retail sector is not doing well is not proven by data.
Moreover, its share of the GDP has grown to 11.8 per cent in the second quarter of this year, compared to 11.2 per cent for the corresponding period last year. Consumers' expenditure rose by 2.6 per cent in real terms this year when compared to last year.
In nominal terms, this represents 65.9 per cent of GDP, while five years ago consumers' expenditure represented 64.5 per cent of GDP, again indicating a more than buoyant wholesale and retail trade activity.
The share of the public sector (that is public administration and public enterprises) continues to be not small and now stands at 22.6 per cent of GDP. However, when viewed from a long-term perspective, this sector has experienced a shrinking role in the economy, as at the end of 1997 it contributed 23.3 per cent to GDP.
Hence the claim that the government's role in the economy is still overbearing is also incorrect. This further proven by the fact that government consumption expenditure this year represented 21.1 per cent of GDP while five years ago it represented 22.3 per cent of GDP.
Gross domestic product at factor cost is made up of an employment income component and a profits component. We keep on hearing that the "worker" is much worse off today. Facts once more refute this claim as totally incorrect.
The share of the employment income component of the gross domestic product was 52.6 per cent in the second quarter of this year, compared with 52.2 per cent in the corresponding quarter last year. This is a good four percentage points higher than the level it was in the second quarter of 1997, when it stood at 48.7 per cent. This implies that, essentially 'workers' are taking a bigger share of the national cake than previously.
The data on GDP also highlights the openness of our economy. Exports of goods and services were at 86.2 per cent of GDP in real terms in the second quarter of this year, down from a peak of 98.9 per cent reached in the third quarter of 2000. The share that we have achieved this year is still very high and is probably the most important sign of the extent to which our economic well-being has to be export led.
When we experience a drop in the exports of goods and services, our growth rate slows down or even goes into negative as happened last year. This, in turn, ties into the issue that in order to sustain our economic growth, our firms need to remain competitive to export more.
Yet another issue is the increase in what the data calls gross fixed capital formation, which is nothing more than another word for investment. The increase in real terms in the second quarter of this year over the corresponding period last year was of 3.6 per cent.
When faced with this data one may sound justified to query whether all this is for real. After all we have had to hear about the supposed poor state of the economy. In effect, the trend that emerges from the latest data on the gross domestic product is positive; it is really positive; but it is up to us to keep it that way by addressing those issues that maintain our competitiveness.