04 January 2006

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Business Today

New Year without sparks sees economy under pressure

Karl Schembri

With no apparent sparking controversies compared to the January last year, when the failed social pact and the public holidays cut were dominating politics and the economy, government will be starting the year 2006 on a calmer note although the economy is still subject to a lot of pressures that are visible to all.
Former Labour Finance Minister Lino Spiteri says “the pressure on exports this year will continue in view of increases in domestic costs” undermining competitiveness.
Business last year was extremely difficult because of the international environment, with exporters facing downward pressure on supply prices.
“Anticipating part of the cost of living increase in the last budget brought about by external energy costs was another inflationary impulse,” he said. “The year ended with an acceleration in the rate of inflation. If this acceleration continues this year, the pressure on costs will continue to increase.” As regards budget measures intended to promote research and development and the upgrading of human resources to the extent that these will yield a positive return, Spiteri says: “I don’t think this will be evident in 2006. The broader picture will depend largely on the state of economies to which we are directly linked, particularly regarding exports.”
It will also depend on our ability to promote Malta as an investment location beyond the traditional areas where some success is being shown, like financial services, Spiteri said.
Economist Karm Farrugia is slightly more optimistic.
“I hope government manages to reduce public expenditure, but frankly the situation cannot get worse,” he said. “Actually I think 2006 will be much better than last year. I just hope the government does not treat it as if it was election year. If budget measures leave the desired effect it will be a great step ahead. The prime minister wants to reduce the fiscal deficit to zero in five years time; that’s a very ambitious plan. At worst they will do no good. I’m not pessimistic though I am not overly optimistic either.”
Union Haddiema Maghqudin Secretary General Gejtu Vella says the EU funds budgeted for 2007-2013 will bring a much needed boost as the government can plan out its upcoming projects.
“What’s important now is that the whole country continues working in one direction, as things start falling into place, economically and socially, after EU membership,” Vella said. “Now in the EU, our benchmarks are no longer set by partisan polemics but by European countries. One of the most important things is that the deficit is being lowered to below 3 per cent, which will eventually give the flexibility to the government in administering fiscal measures. In the meantime it is essential that Malta does not lose its competitiveness further.”



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