The last week of the year provides an opportunity to have a look at what has happened in the past year and seek to draw any lessons from it. 2007 may be viewed as the year when it was ascertained that we complied with the Maastricht criteria and were consequently admitted into the eurozone. However, I believe that this has more to do with the year to come than the year that was. I believe that 2007 will be recorded as the year when our economy managed to take off, as it reaped the benefits of EU membership. This result was achieved in spite of uncertainty in a number of leading economies following the increase in the price of oil and other raw materials and the credit crunch that resulted from the defaults in the subprime loan market.
In broad terms, in the year that is coming to a close, we have managed to reign in the fiscal deficit to sustainable levels. This has been a worrying feature in our economy for the last decade and with continued fiscal prudence we should consider this issue a matter of the past. Employment continues to rise as the labour participation rate in the economy rose again. Unemployment is also on a downward trend. Exports of goods and services have also risen, as manufacturing industry performed well, the financial services sector continued to flourish and tourism picked up quite nicely following a few years of no growth. The economic data that has been published during these last three months confirm these trends.
Furthermore, a number of leading companies have announced further investment in Malta, confirming a high level of business confidence. The overall message that one gets is that the period of adjustment following entry into the EU (although this period started before actual membership date in a number of sectors) and the period of transformation as our economy continued to modernise itself and shed inherent rigidities, have led to an economy that is moving forward at a steady pace, that is not breathtaking. This in itself is positive as it is allowing the operators (big and small) in the economy to absorb the growth spurt, before moving to further growth. This makes the current economic growth more sustainable in the long term.
There are some dark spots in this scenario, the main one being the increase in prices. It does seem that most of the inflation that we are having is resulting from imports rather than the domestic economy. This would indicate that our own competition rules are working, but we are still (and we will continue to be) very vulnerable to adverse international developments.
Higher inflation is bound to lead to higher costs and therefore there is always the risk that companies operating here will lose their competitiveness. Apart from the inflation issue, our labour market is developing some bottlenecks in certain skill areas. This again could lead to higher costs and, possibly even more worrying, it could lead to lost opportunities.
There are two aspects, which although not strictly economic, do have an impact on the economy. The first is the element of social cohesion in the country. This is something that we need to work constantly on. Apart from the inherent goodness of social cohesion, we need to appreciate and understand that social cohesion is good for the economy and social injustices is inherently bad for the economy. The second aspect is education. There is no doubt that the country has enjoyed success in this field for a number of years, both in quantity terms and in quality terms. We need to ensure that both are maintained with sacrificing either. In both aspects, the results achieved this year have been also very positive, which also explains why the economy has done well.
Thus as we celebrate the New Year, toasting to our economic success would be very much in order. In truth it is not the success of just one year; it is the success of sound policies over the last number of years. This is why they cannot be taken for granted. I feel that the old adage that it takes a lot of time to construct something good, but no time at all to destroy it, applies very much here. The year that was has been good for the economy; we need to make sure that we enjoy this economic success for as long a time as possible.