The budget debate, that is now over in Parliament (it will probably carry on in the media and in meeting rooms because of the public holidays issue), also serves to have a look at the year that was. The spate of data that is provided by the National Statistics Office through the Economic Survey, which is published together with the budget speech and the estimates of government income and expenditure, allows us to take an overall view of the performance of the Maltese economy.
As expected, it was positive in some respects and it was negative in others. How this data is interpreted is up to each and every individual but no individual can claim to have a monopoly over the ownership of the truth.
The overall key economic indicator is the gross domestic product. This has increased marginally in the first nine months of this year when compared to the first nine months of 2003. The increase was of 0.6 per cent.
There is no doubt that the expectation was of a higher growth rate. Exports have increased by significant amounts but so have imports. Exports of goods and services increased by 3.6 per cent in real terms in the first nine months of this year. Investment has increased in real terms as well and so has household consumption.
In fact, the main downward push on the GDP has been the increase in imports. The increase in imports has been of capital goods and consumption goods. The indication is that the retailing and distribution sector has reaped benefits from this increased household consumption, while the manufacturing sector has kept up its performance as shown from the level of increased exports. The barometer points to fair in this regard and will probably remain so.
Tourism is always recognised to be a good indicator of the performance of the Maltese economy. This is because not only does it provide jobs directly to persons working in hotels, catering establishments and the travel trade, but it also provides jobs indirectly to the retailing and distribution sector and the manufacturing sector through the activity it creates. Moreover, the direct injection of money into the economy by the tourism sector is of a very significant size.
In effect, the tourism industry worldwide has been passing through a difficult phase worldwide following the September 11, 2001 events, the general international economic slowdown and the downward pressure on prices brought about by increased competition across the board.
Even so, the number of tourists visiting Malta during the first 10 months of this year increased by 3.8 per cent. We registered increases practically across all markets, the only exceptions being the United Kingdom, Austria, The Netherlands and Libya.
The Libya issue is related to visas, while the UK issue is probably related to the difficult economic situation in that country following the hike in interest rates there. In some countries, the increase was in double digits, while it is worth noting the increases from Scandinavia following improved air links between Malta and Sweden, Norway and Denmark.
In terms of the number of nights spent in Malta by tourists, a drop was registered, even if hotels registered an increase of over seven per cent in terms of overnights. The drop in nights was felt in the apartment sector, covering holiday complexes, furnished premises and aparthotels.
Total expenditure by tourists for the first 10 months of this year stands at Lm395 million, marginally up from last year; however expenditure per capita is down when compared to last year. The indication one gets from these figures is that the tourism industry is trying very hard to maintain a strong momentum of growth, but it is still vulnerable to events beyond our shores. The barometer points to fair but one never knows from where some nasty clouds are going to appear to set us back.
Another important aspect is the movement in the retail price index that measures the cost of living. During this year, the RPI was heavily impacted by the increase in VAT of three percentage points as a result of the 2003 budget. In October 2004 the index stood at 104.36, 2.4 per cent higher than the same month the previous year.
In itself this is a worrying indicator as it has pushed inflation up to 2.63 per cent on a yearly basis. However, when one weeds out the impact of the increase in VAT, one notes that the RPI moved only marginally in the last 12 months. Thus, inflation can be said to be under control even if this year we hit levels that are the highest registered in the past 24 months.
One would expect that in the beginning of 2005 the inflation rate would start moving downwards again. The barometer points to change but should be moving to fair.
A brief note on data related to the information society, given the importance that is being given to it in public policy formulation. The results indicate a success by all standards. Internet subscriptions continued to rise and are now just under three and a half times the level they were at the beginning of the year 2000. Mobile telephone subscriptions are just under seven times the level they were at the beginning of the year 2000.
This also indicates a shift in expenditure patterns. The barometer definitely points to sunny in this respect. In the meantime, the government has managed to deliver on one key aspect of its economic strategy, namely reducing the fiscal deficit, while in spite of the economic restructuring that is taking place (it is now hitting government controlled organisations and not just the private sector), unemployment is still at a sustainable level.
I think that the economy has performed relatively well given these indicators, even if it is under-performing and there is scope for stronger growth. We should obviously not forget that we are now living in a different economic scenario brought about by membership of the European Union. The change process resulting from this different scenario is continuing and will take some more time. However, it does not have to be painful even though we should be realistic in our expectations. Overall the economic barometer, based on the year that was, points to change moving on to fair.