Business leaders and trade unions are increasingly gloomy about the negative effect on Malta's economy as a result of the global economic situation and the increase in the utility tariffs.
A number of exporting companies have already reduced their workforce to a four day week while one company has made a number of employees redundant.
Martin Galea, president of the Federation of Industry said: "Whether Malta is affected by the recession or not is now without question. What needs to be determined is how badly and for how long. This is dependent on a number of factors some of which are beyond our control.
"We have already seen some of our exporting companies hit by the downturn in demand. They have had to react by cutting production and in some instances by reducing employment. This would indicate that their outlook is that this is for the longer term. Depending how many companies may have to go down this route will determine the effect on local demand on which local companies depend. This may be aggravated by any downturn in tourism which leaves a cash multiplier in the system.
"At present the outlook for industry is therefore not good. The issue of the water and electricity rates at this particular time can only aggravate the already precarious situation. It is unclear how long the world economic problems will last and how deep they will cut. However Malta is a small economy and how badly we will be hit will depend on whether companies still set up here in new industries, whether the current FDIs will be able to weather this storm without further cutbacks in employment and whether tourism remains relatively healthy. All eyes are on our main markets," he said.
Mr Galea said he expected the government to at least cushion the effects of the utility increases for industry in next week's budget. "Twenty-six large companies have had their increase capped at 40 per cent but all the other companies have not and this will have a very negative effect on them. This needs to be addressed during the budget," he said.
Mr Galea, who is managing director of Joinwell, a long established furniture manufacturer and importer, said his company's utility bills will now increase by 60 per cent.
Louis Farrugia, Farsons Group CEO said his company's ultility bills will now increase by "hundreds of thousands of euros" annually. Industry sources told The Times Business that the cost of the increased tariffs to ST, Malta's most important export company, will be €3 million a year.
Gejtu Vella, secretary general of the Union Haddiem Maghqudin, said he was in a position to reveal that the annual extra cost in utility bills to the Malta Freeport would be €2.5 million per year. Mr Vella accused the government of pursuing a right-wing agenda, and said it should listen to the social partners' concerns and introduce measures to boost confidence in the economy.
"We are in a serious situation. A number of companies have approached me to express to their preoccupation about the global economic situation and its effect on the local economy as well as the increased utility tariffs.
"The government is ignoring the concerns of the social partners. It should listen to us. What is the use of having the MCESD? The so-called market economy which the government says it believes in is a right-wing market economy. The increase in utility tariffs couldn't come at a worse time," he said.
Mr Vella said the government must introduce measures to boost confidence in the economy "as countries throughout Europe are doing" and called for tax cuts in next week's budget as one way of achieving this, saying that people's purchasing power must be increased. He also said it was important for the government to increase its spending on education, and especially training, so that people can better face today's challenges in the labour market.
On Tuesday Methode Electronics Ltd announced that its 600 employees will start working for four days a week from Monday. The company exports electrical equipment to car manufacturers, which have recently seen a sudden decline in international demand as a result of the global financial turmoil. The slump in worldwide automotive sales has meant fewer orders in the company's books.
Trelleborg, which supplies O rings to the car industry, recently opted for a four-day week in similar circumstances. Last week, Toly Products, a leading cosmetics packaging manufacturer, laid off 84 employees after orders dried up.
General workers' Union secretary general Tony Zarb was equally pessimistic telling The Times Business: "There are several other companies, both large and small firms, which are considering options similar to Trelleborg, Toly and Methode because of the global financial situation."
Mr Zarb said after the govern-ment announced the new water and electricity tariffs on Tuesday, several companies contacted the GWU in the morning asking for meetings to discuss the situation.
"Both the increase in utility tariffs and the worsening global economic climate came at the same time. We are very concerned and it seems the government does not understand the real situation in the employment sector.
"The situation is worrying and workers have to shoulder the burdens both at their workplace as well as privately as a result of the new utility tariffs," he said.
Referring to AD's call for a national protest, Mr Zarb said the GWU would have no problem participating in such a protest if all social partners remain united and showed their opposition to the new tariffs.
"If taking to the streets is the last option that we have, then we would have no choice but take to the streets in protest," he said.
Last week the UK economy shrank - for the first time in 16 years - between July and September leading to fears that Britain is on the brink of a recession and that many other industrialised nations will follow suit.
Economist Edward Scicluna said: "The UK as a market for our exports of manufactured goods takes only 8.5 per cent of all exports, not so big as it was two or three decades ago.
"So it is not so much the recession in the UK which is worry-some for our exports, but that the country's recession is being synchronised in other countries as well. These include the US which also takes up another nine per cent of our exports, Italy (5 per cent) and others. It is not known with certainty how deep or long the global recession would be. More importantly is whether the Asian countries would be affected in a significant way.
"The loss of personal disposable income affects consumption negatively. This includes holidays abroad. The UK market for Malta's tourism industry has been dwindling of late mostly due to the weak exchange rate. This would be exacerbated when incomes start falling," he said.
Prof Scicluna said there are substitution effects which could still favour Malta and compensate for the loss of the tourist market due to falling incomes.
" If Malta is seen as a cheap destination, economic theory predicts that the demand for "inferior" products tend to increase as incomes fall. No offence should be taken, but I suggest that we should try to market ourselves as such during the coming difficult global period. We have to be careful how to interpret the economic term "inferior". It means good value for money, even though the standard is below what the consumer would have been used to in the past," he said.
Economist Gordon Cordina said that in the current international globalised environment, Malta would be likely to be impacted by the UK recession directly, but also indirectly through the effects which developments in the UK economy would have on other countries and hence on their demand for Maltese products.
"This is another piece in a puzzle of international recession that is forming, from which Malta is not likely to be immune. The only feasible way to insulate Malta's economy from cyclical fluctuations would be to specialise in market niches which are immune to recessionary pressures. This would typically involve products and services purchased by the very richest people in the world, for whom a recession would merely mean a change in asset values rather than in consumption levels," he said.
Dr Cordina said Malta has not as yet achieved such a productive status "and will therefore be likely to be impacted by the downturn in international demand".
He added: "A major factor which could help absorb these effects is to have a temporarily higher fiscal deficit, with more public resources being devoted to promote the competitiveness of business, from the perspectives of costs and other issues.
"After a significant growth in the number of jobs over the past two years, it would be imperative to avert, as much as possible, the threat of job losses at this stage."
The Malta Employers Association adopted a similar position and has called for tax cuts in next week's budget even if the deficit increased as a result. MEA director-general Joseph Farrugia told The Times Business that the country could not risk an economic slowdown especially in view of the global crisis.
A number of exporting companies have already reduced their workforce to a four day week while one company has made a number of employees redundant.
Martin Galea, president of the Federation of Industry said: "Whether Malta is affected by the recession or not is now without question. What needs to be determined is how badly and for how long. This is dependent on a number of factors some of which are beyond our control.
"We have already seen some of our exporting companies hit by the downturn in demand. They have had to react by cutting production and in some instances by reducing employment. This would indicate that their outlook is that this is for the longer term. Depending how many companies may have to go down this route will determine the effect on local demand on which local companies depend. This may be aggravated by any downturn in tourism which leaves a cash multiplier in the system.
"At present the outlook for industry is therefore not good. The issue of the water and electricity rates at this particular time can only aggravate the already precarious situation. It is unclear how long the world economic problems will last and how deep they will cut. However Malta is a small economy and how badly we will be hit will depend on whether companies still set up here in new industries, whether the current FDIs will be able to weather this storm without further cutbacks in employment and whether tourism remains relatively healthy. All eyes are on our main markets," he said.
Mr Galea said he expected the government to at least cushion the effects of the utility increases for industry in next week's budget. "Twenty-six large companies have had their increase capped at 40 per cent but all the other companies have not and this will have a very negative effect on them. This needs to be addressed during the budget," he said.
Mr Galea, who is managing director of Joinwell, a long established furniture manufacturer and importer, said his company's utility bills will now increase by 60 per cent.
Louis Farrugia, Farsons Group CEO said his company's ultility bills will now increase by "hundreds of thousands of euros" annually. Industry sources told The Times Business that the cost of the increased tariffs to ST, Malta's most important export company, will be €3 million a year.
Gejtu Vella, secretary general of the Union Haddiem Maghqudin, said he was in a position to reveal that the annual extra cost in utility bills to the Malta Freeport would be €2.5 million per year. Mr Vella accused the government of pursuing a right-wing agenda, and said it should listen to the social partners' concerns and introduce measures to boost confidence in the economy.
"We are in a serious situation. A number of companies have approached me to express to their preoccupation about the global economic situation and its effect on the local economy as well as the increased utility tariffs.
"The government is ignoring the concerns of the social partners. It should listen to us. What is the use of having the MCESD? The so-called market economy which the government says it believes in is a right-wing market economy. The increase in utility tariffs couldn't come at a worse time," he said.
Mr Vella said the government must introduce measures to boost confidence in the economy "as countries throughout Europe are doing" and called for tax cuts in next week's budget as one way of achieving this, saying that people's purchasing power must be increased. He also said it was important for the government to increase its spending on education, and especially training, so that people can better face today's challenges in the labour market.
On Tuesday Methode Electronics Ltd announced that its 600 employees will start working for four days a week from Monday. The company exports electrical equipment to car manufacturers, which have recently seen a sudden decline in international demand as a result of the global financial turmoil. The slump in worldwide automotive sales has meant fewer orders in the company's books.
Trelleborg, which supplies O rings to the car industry, recently opted for a four-day week in similar circumstances. Last week, Toly Products, a leading cosmetics packaging manufacturer, laid off 84 employees after orders dried up.
General workers' Union secretary general Tony Zarb was equally pessimistic telling The Times Business: "There are several other companies, both large and small firms, which are considering options similar to Trelleborg, Toly and Methode because of the global financial situation."
Mr Zarb said after the govern-ment announced the new water and electricity tariffs on Tuesday, several companies contacted the GWU in the morning asking for meetings to discuss the situation.
"Both the increase in utility tariffs and the worsening global economic climate came at the same time. We are very concerned and it seems the government does not understand the real situation in the employment sector.
"The situation is worrying and workers have to shoulder the burdens both at their workplace as well as privately as a result of the new utility tariffs," he said.
Referring to AD's call for a national protest, Mr Zarb said the GWU would have no problem participating in such a protest if all social partners remain united and showed their opposition to the new tariffs.
"If taking to the streets is the last option that we have, then we would have no choice but take to the streets in protest," he said.
Last week the UK economy shrank - for the first time in 16 years - between July and September leading to fears that Britain is on the brink of a recession and that many other industrialised nations will follow suit.
Economist Edward Scicluna said: "The UK as a market for our exports of manufactured goods takes only 8.5 per cent of all exports, not so big as it was two or three decades ago.
"So it is not so much the recession in the UK which is worry-some for our exports, but that the country's recession is being synchronised in other countries as well. These include the US which also takes up another nine per cent of our exports, Italy (5 per cent) and others. It is not known with certainty how deep or long the global recession would be. More importantly is whether the Asian countries would be affected in a significant way.
"The loss of personal disposable income affects consumption negatively. This includes holidays abroad. The UK market for Malta's tourism industry has been dwindling of late mostly due to the weak exchange rate. This would be exacerbated when incomes start falling," he said.
Prof Scicluna said there are substitution effects which could still favour Malta and compensate for the loss of the tourist market due to falling incomes.
" If Malta is seen as a cheap destination, economic theory predicts that the demand for "inferior" products tend to increase as incomes fall. No offence should be taken, but I suggest that we should try to market ourselves as such during the coming difficult global period. We have to be careful how to interpret the economic term "inferior". It means good value for money, even though the standard is below what the consumer would have been used to in the past," he said.
Economist Gordon Cordina said that in the current international globalised environment, Malta would be likely to be impacted by the UK recession directly, but also indirectly through the effects which developments in the UK economy would have on other countries and hence on their demand for Maltese products.
"This is another piece in a puzzle of international recession that is forming, from which Malta is not likely to be immune. The only feasible way to insulate Malta's economy from cyclical fluctuations would be to specialise in market niches which are immune to recessionary pressures. This would typically involve products and services purchased by the very richest people in the world, for whom a recession would merely mean a change in asset values rather than in consumption levels," he said.
Dr Cordina said Malta has not as yet achieved such a productive status "and will therefore be likely to be impacted by the downturn in international demand".
He added: "A major factor which could help absorb these effects is to have a temporarily higher fiscal deficit, with more public resources being devoted to promote the competitiveness of business, from the perspectives of costs and other issues.
"After a significant growth in the number of jobs over the past two years, it would be imperative to avert, as much as possible, the threat of job losses at this stage."
The Malta Employers Association adopted a similar position and has called for tax cuts in next week's budget even if the deficit increased as a result. MEA director-general Joseph Farrugia told The Times Business that the country could not risk an economic slowdown especially in view of the global crisis.