10 August 2005

The Web

Economy displays worrying signals

• Exports drop by 15 per cent
• New industrial orders fall by 18 per cent

James Debono

Government officials upbeat about a turnaround in the economy have new negative indicators to contend with as exports dropped by 15 per cent in the first six months of the year and industrial new orders also registering a decrease of 18 per cent.
Statistics issued by the National Statistics Office yesterday show a hefty drop of 15 per cent in exports, which confirm the downward trend that had already been developing in the first quarter of the year.
This drop is accompanied by a decrease of 18 per cent in industrial new orders.
Government’s optimistic claim that the economy is experiencing a “turnaround” is reiterated today by Parliamentary Secretary Tonio Fenech in an interview with The Malta Financial and Business Times (see pages 10 and 11).
But NSO statistics show that the industrial sector has not yet benefited from this turnaround in economic fortunes.
Total exports have gone down by Lm5 million to Lm68.3 million from Lm73.3 million in June 2004.

The only sector to experience a significant growth in exports is the pharmaceutical sector, which has also seen an increase in industrial orders.
The sharpest drop in exports has been experienced by the machinery and transport equipment sector.
The decrease in exports has resulted in a widening of the trade gap by Lm40 million when one compares the first six months of 2005 with the corresponding period in 2004.
This decrease in exports was also reflected in a 17.6 per cent decline in industrial orders registered by exporting manufacturing companies during the past year.
The only evidence of an “economic turnaround” comes from monthly surveys conducted by the Federation of Industry.
An FOI spokesperson told The Malta Financial and Business Times that “the manufacturing sector has regained confidence since April 2005 and this has been reflected in an increase in order books in June.”
But according to economist Karmenu Farrugia the latest figures do not come as a surprise because “our industrial sector has been in recession for some quarters now, even when overall the economy was not.”
The NSO statistics reveal there was an overall drop of 17.9 per cent in the total industrial new orders index between May 2004 and May 2005.
While the domestic new orders index registered an increase of 30.1 per cent new orders for export decreased by 17.6 per cent.
According to Farrugia the positive 30.1 per cent increase for the domestic new orders, has little significance on the general economic picture.
Farrugia interprets the increase in domestic orders as “a respite after the battering received through the disappearance of protectionism.” Farrugia attributes this to an increase in depleted stock levels.
But its effect on the economy in general is flat, so much so that it didn’t even manage to contain even a little the 17.6% decrease in orders for export.
Farrugia considers the decrease in orders for exports as “very serious” especially “if it is not redressed somehow during the next month or two.”
According to the NSO increases were registered in the manufacture of chemicals and fabricated metal products.
Decreases were registered in the manufacture of textiles and textile products and new wearing apparel.
A spokesperson for the Federation of Industry told The Malta Financial and Business Times that order books are an important factor for overall industrial confidence.
The FOI is concerned by overall trends.
“Throughout 2004 and the first months of 2005, the manufacturing sector has been going through some very difficult times.”
According to the FOI, throughout this period the domestic and international demand scenarios remained unstable and, together with high pricing pressures and increasing costs, local manufacturing companies, especially those that are export oriented, had to reduce prices and sometimes reduce their workforce in order to remain competitive.
For the past years the FOI has considered industrial orders as an important factor. The FOI is currently conducting a monthly industry survey that gives a constantly updated picture of the overall sectoral position, even in terms of order books.
According to the FOI’s monthly industrial surveys the manufacturing sector has been regaining confidence since April.
The balance of the number of companies registering a decrease in their overall order books in April 2005 stood at minus 43.
But in the month of June, there were more companies registering an increase in order books. During June the balance stood at plus 28.
“This improvement was driven by a more buoyant order books especially across export-oriented companies,” said the FOI spokesperson.
But according to the FOI spokesperson results in July and August have been somehow more negative.
Considering the volatile scenario in which manufacturing companies operate the Federation of Industry is insisting that costs for this sector are not increased and that “measures that enhance its competitiveness are undertaken without unnecessary delay.”



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