The National Statistics Office has published data on the gross domestic product for the second quarter of the year. This was much awaited data as, in March this year, it had become fairly evident that the international economy could no longer sustain the high level of fuel prices that we were experiencing at that time.
Inflation had hit levels that had not been seen for many months before, and the credit crunch started to be felt. The slowdown in the major world economies was more than evident and so it was more than legitimate to expect that such a difficult situation was going to have a negative impact on the Maltese economy.
I have always believed that our economy was a very resilient one. We do suffer when the international economic situation is difficult, and we do gain when the international economic situation is buoyant, and therefore our economy is very vulnerable to developments beyond our shores.
However, over the last 20 years we have weathered the economic storms that came our way fairly well. The gross domestic product data for the second quarter of this year reconfirms this viewpoint. The Maltese economy grew by 6.2 per cent in nominal terms and by 3.2 per cent in real terms (that is after accounting for inflation) during the period April - June 2008, when compared to the same period last year.
We can take the data further. GDP per capita in the second quarter of this year reached €3,485.
We have experienced a higher level of gdp per capita in a quarter only once before - the third quarter of 2007. This is understandably so, as our economy is affected by seasonality, and the third quarter is consistently the quarter with the highest gdp per capita. When compared to the second quarter of 2004 (that is the time we joined the EU), GDP per capita rose by 25 per cent in the same period this year.
Students of economics know that there are three ways of measuring gdp - the production approach, the expenditure approach and the income approach. Using the income approach (that is summing up all the incomes earned), one notes that compensation of employees increased by 4.8 per cent this year when compared to last year, while it increased by 18.8 per cent when compared to 2004. However, compensation to employees was not the only driver of economic growth, as gross operating surplus earned by businesses increased by 8.8 per cent over last year and by 32.8 per cent over 2004. This indicates a very healthy business climate, which is conducive to further growth in employment.
Using the expenditure approach, other interesting data emerges. Government expenditure contributed very minimally to gdp growth, while the contribution of household and investment expenditures was in both cases nearly twice the amount that of government expenditure. This indicates a lower level of direct government intervention in the economy and, more importantly, a lower level of dependence on government expenditure for economic growth.
Turning to the production approach, the NSO reported that growth in value added was generated across the whole of the economy with the exception of manufacturing; and essentially within one sub-sector of manufacturing. This indicates a sense of balance within the economy in that it is not dependent on any one single sector, as happens in most island economies.
The fact that the economy is not moving on one piston but on a number of pistons provides further reason for optimism.
It needs to be appreciated that since one swallow does not necessarily mean that spring is round the corner, it cannot be assumed that this very positive performance will necessarily be maintained during the rest of the year and the next. The head of the European Central Bank has in fact stated publicly that one cannot expect any economic recovery before next year, while in the UK, it has been stated time and time again that the economy is stagnating.
Therefore, although one has good grounds to be optimistic about the performance of our economy, one cannot take anything for granted. We need to keep working hard at it and the various economic operators in this country need to stick it into their heads that just because they are having it good one year, they cannot take their customers and the good times for granted.