The European Commission’s Spring 2017 Economic Forecast has gone relatively unnoticed here in Malta. Economic reports prepared by foreign experts, unfortunately, tend to be given much less weight than they deserve. Yet they underpin the decisions of foreign investors and are a crucial determinant of our welfare.
The spring forecast was prepared by commission experts before the announcement of the general election. In fact, the commission website notes that “for all other incoming data, including assumptions about government policies, this forecast takes into consideration information up until and including April 25, 2017”. It also makes clear that “the projections assume no policy changes”. Thus it is a clinical assessment of how our economy will progress if we keep current policies.
The section on Malta is entitled ‘Malta: Solid growth continues’. In it, the economists say that “Malta’s economy performed better than expected in 2016”. They attribute this to an increase in services exports and a rise in private consumption fuelled by higher disposable income and lower unemployment. They also note that investment “remains well above the historical average”.
This review is a far cry from that included in the Commission’s Spring 2013 Economic Forecast. Four years ago the section on Malta was titled ‘Malta: Subdued investment holds back growth’. That title was followed by the subtitle ‘Economic growth moderated further in 2012’. I would like to quote some sentences from that report.
“Economic growth continued to decelerate in 2012 with real GDP growth slowing down to 0.8 per cent, from 1.7 per cent in 2011… Domestic demand remained weak as household consumption growth turned negative again and gross fixed capital formation contracted further. In particular, private construction investment continued declining, falling below its 2004 value in nominal terms. Thus, it was only the significant increase in government consumption expenditure that supported domestic demand.”
It is as if we are speaking of a completely different country. In 2012, according to the commission, our households were cutting back spending while investment was declining. The only thing propping us up was “the significant increase in government consumption expenditure”.
If we stay on course over the next years, we will have the strongest economic growth in Europe and the best public finances
The Opposition speakers on the economy would do well to read this report to remind themselves of where they had led our economy. Instead during this electoral campaign we have heard, time and time again, that the economic success we have today is inherited from 2012. Moreover the current administration gets accused that it overspends when it is clear to any objective analyst, like these commission experts, that this was the sin of the previous administration.
In their Spring 2013 Economic Forecast, the Commission economists had sounded the alarm on our public finances. Their report was titled ‘Fiscal stance has lost momentum’. Once again I quote directly the report:
“The general government deficit increased by 0.5 pp. in 2012, reaching 3.3 per cent of GDP… The approved 2013 budget appears to be expansionary. As a consequence, the deficit in 2013 is expected to widen to 3.7 per cent of GDP. The debt-to-GDP ratio is projected to continue increasing over the forecast horizon, as the primary deficit is expected to continue expanding. The main downside risk to this debt outlook is related to the financial situation of Enemalta, which could entail additional subsidies.”
Once again, it is as if you are reading a report of another country. Compare this with the Spring 2017 Economic Forecast section on public finances, which is titled ‘Government balance turned positive in 2016… and is expected to remain positive over the forecast horizon’.
Here in Malta the Opposition ‘economic experts’ tell us that the surplus was due to the slashing of capital spending. The commission experts, on the other hand, state clearly “this better-than-expected outcome is explained by the high growth rate of current revenue”. They mention the substantial growth in income tax revenue, while they note the importance of the IIP – a programme that the Opposition has opposed and tried to undermine.
While the Opposition harps about falling capital spending, the commission experts disagree completely so much so that they underline that “net capital expenditure increased by 0.3 pps of GDP”.
In their forecasts based on a “no policy changes” assumption, the commission experts forecast that in 2017 and 2018 our economy will grow by 4.6 and 4.4 per cent, respectively. If one looks at the first table of the Spring 2017 Economic Forecast, one realises that these forecasts mean that this year and the next, Malta will have the highest economic growth among all EU countries. In fact, our growth is set to be nearly three times that in the rest of the euro area. It will be more than double the average growth observed under the previous administration.
When one compares the Spring 2017 Economic Forecast with the preceding Winter 2017 Economic Forecast, one finds that the economic growth for Malta was nearly revised upwards by one per cent. The forecast for the rest of the EU was left broadly unchanged. It is clear that we are running on a completely different path to the rest.
As for public finances, the commission forecasts that we will have a surplus of 0.5 per cent of GDP this year, followed by 0.8 per cent next year. Once again this means that we will have the highest surplus among all EU countries. All this in a context of “no policy changes”. The burden of our national debt will fall to 52 per cent of GDP, the lowest on record since 1998. In just four years, this administration has undone the increase in the debt burden the previous administrations hobbled our country with.
The European Commission’s Spring 2017 Economic Forecast sends us a clear signal. If we stay on course over the next years, we will have the strongest economic growth in Europe and the best public finances. The Spring 2013 Economic Forecast reminds us what the previous direction led us to. Falling consumption and investment, growing deficits and debt burdens.
I am confident that on June 3 voters will choose to make our country the best in the EU.
Chris Cardona is Minister for the Economy, Investment and Small Business.