The data emanating from the National Statistics Office and the Economic Survey, published by the Economic Policy Division together with the budget last week, have raised a number of eyebrows. The government's claim is that the state of the economy is improving and a number of fundamental economic indicators all point in a positive direction. The counter claim is that the economy is not improving and that Joe Public is worse off than he was before.
Doubts have also been raised about the validity of the data presented. I believe that this specific issue is a non-issue as the minute we start doubting the published data in a gratuitous manner (as in fact has happened), then we might as well have a situation where everyone publishes his or her own economic data.
It needs to be stressed that it is not the Ministry of Finance that publishes the economic statistics but the National Statistics Office. The NSO has earned its credibility over the years as it has never sought to suppress data that could have been embarrassing for government.
Therefore, the discussion should not be about the validity of the data but about the performance of the economy. Is this performance a positive one or a negative one in the light of the data we have at hand today?
Gross domestic product (using the expenditure method of measurement) increased by 1.7 per cent in real terms (that is, after accounting for inflation) during the first nine months of this year, when compared to the same period of 2004. This is an evident growth of the economy. Real GDP per head of population increased only marginally.
The main contributor to the growth in GDP has been gross fixed capital formation (another term for investment). In fact it is indeed significant that domestic demand has been fairly subdued during these nine months, with private consumption expenditure increasing only marginally and government consumption expenditure decreasing by 3.7 per cent in real terms.
Gross value added increased by two per cent between 2004 and 2005. However, we have had a deterioration in the current account deficit of the balance of payments. The increase in the deficit in the current account is mainly due to a decrease in the exports of manufactured goods. In real terms, exports declined by 6.8 per cent.
The current account deficit as a percentage of GDP increased from 5.6 per cent in the first nine months of 2004 to nine per cent in the same period this year. This is probably the most worrying feature of the economic data published.
Average weekly compensation of employees continued to rise in nominal terms but fell again in real terms this year after it had peaked in 2003. But household disposable income (which includes not only compensation of employees but also non-wage income and government transfers like social benefits) increased by 4.1 per cent, which is way above the rate of inflations. Therefore, in real terms, this has increased.
Moreover, the savings rate increased this year. Thus, whereas wages have gone down in real terms, when one takes into account all income accruing to households, the negative situation reverses itself.
In terms of employment, the continued restructuring of the economy becomes even more evident. Labour supply has gone down in September of this year, when compared to September last year. However, the number of persons in full time employment increased, albeit marginally, while the number of persons in part-time employment (as a primary job) increased significantly yet again. Additionally, one needs to note that self-employment continued to rise while employment in government departments continued to fall. The share of public sector employment of total employment has now reached 32.9 per cent, compared to 35.3 per cent four years ago. The unemployment rate is down to five per cent. These are all indications of a positive result in the employment area.
The 12-month moving average inflation rate, measured according to the harmonised index of consumer prices, reached 2.18 per cent. The index has been showing a decline since November 2004 and as such, although there were times in the last two years when there was the fear inflation could have been a serious cause for concern, this fear should now subside.
Obviously, one still needs to measure fully the impact of the increase in the prices of water and electricity.
The reduction in the rate of inflation, in particular when compared to our major competitors in Europe and North Africa, has helped to improve our country's price competitiveness, thereby indicating that the drop in exports is more due to a drop in demand for products produced in Malta than due to a loss in competitiveness.
A review of the economy shows that, in spite of the transformation process that it is going through and in spite of a very difficult international economic situation, there emerge a number of positive indications. The extent to which these positive indications are filtering down to Joe Public is as yet unclear. However, the decrease in the unemployment rate, coupled with the increase in household disposable income and the savings rate, provide enough comfort that the benefits of the increased gross domestic product are leading to an increase in the well-being of the Maltese in general.