A statement that has been heard often enough in the last 10 years with regard to the economy (both Maltese and international) is that the only thing we can be certain of is that things will change. The enlargement of the European Union, the growth in international trade as a result of multi-lateral trade agreements, developments in technology, the creation of free trade areas, the increased ease with which capital and resources can move across national borders, and other developments have all contributed to creating the change that we have gone through.
However, what this has also meant was the fact that change is unpredictable in the way it happens. No one can determine with any certainty which twist events would take and this explains the unpredictability that we are being faced with today in the economy.
In 2000, a number of top American economists were asked if the boom in the stock market was a bubble or not. They replied in the negative.
In 2001, a poll of economists indicated that the American economy would not dip into recession.
Last year a similar poll indicated that economists were expecting that the rate of interest in the United States would not fall to one per cent in the following 12 months.
In all three cases, these economists were proved wrong. In the late 1990s there was a general feeling that somehow the economic cycle (that is the trend that we have had for decades of an economic boom being eventually followed by a recession and this would eventually be followed by another economic boom) had been eliminated.
Low inflation and good growth rates were thought to be here to stay. Even this was proved wrong. We had a similar situation with public finances.
By the year 2000, it was believed that governments had managed to rein in their fiscal deficits and would not be embarking on a policy of increasing their borrowing requirement.
If investors did not believe this, bond markets would not have behaved in the way they did three years ago. So much so that the creation of the euro was pre-conditioned by the Stability Pact, that forces governments within the eurozone to contain their deficits to three per cent of the gross domestic product.
However, in the following three years governments did exactly the opposite. The fiscal deficit in the US could reach six per cent of the gdp (from a surplus of 1.4 per cent), in Britain it could reach three per cent of gdp (from a surplus of four per cent), and in Germany (the chief promoter of the eurozone stability pact) it is expected to reach four per cent of the gdp.
No one saw this coming, until after it happened. At this stage, this has led to forecasts on the future growth rates of the world's leading economies being very cautious.
Economists are expecting an increase in growth rates to happen only sometime in 2004. And today that seems so far away into the future that one should not be too surprised that there is some optimism around. In fact what this unpredictability has brought about is excessive focusing on the short-term.
Does all this impact on Malta? I believe that the answer is yes. The openness of our economy is such that it makes us highly dependent on what happens beyond our shores. Manufacturing companies are being faced with requests for better quality, higher demand but lower prices. Operators in the tourism sector are seeing their margins being squeezed to unsustainable levels.
If we look back to the year 2000, the economic data showed very clearly that we were very much on the right track - a shrinking public sector deficit, growth in both the manufacturing and the tourism sectors (the main propellers of our economy), increased investment, a surge in business confidence. Three years down the line we are having to face the challenges that an international economic slowdown poses, with its impact on our economy in terms of investment, employment, balance of payments and the fiscal deficit.
In many respects we are managing to hold our own. Some key indicators are positive. For example exports are rising, imports of capital goods (a good indication of investment) are rising, the number of persons in employment is also rising.
On the other hand, the number of unemployed persons is rising as is the public sector deficit. These contrasting figures are sending mixed messages, which when compounded by the uncertainty in the international economy is leading to a sense of uneasiness.
It is emerging very clearly that one cannot predict what is likely to happen from an economic viewpoint and even the best plans at times become superfluous because of this unpredictability.
This does not mean that one should allow the economy to drift hoping for better times. It rather means that that the social partners have to get together and discuss openly the current situation with the objective of taking those decisions that are not in the interest of some lobby group but are in the interest of society as a whole.