22 March 2006

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Business Today

Beneath the surface

At face value an economic growth of 2.5 per cent for 2005 is more than impressive and it is no wonder that the prime minister and his junior minister have lauded the success, going one step further and claiming an economic turnaround.
But lest we should be kidding ourselves, the figure quoted by the National Statistics Office requires a deeper analysis.
It would be a mistake if government simply dismissed critics as Labour-leaning harbingers of doom. Economists of repute such as Lino Spiteri and Edward Scicluna have no political mileage to gain by questioning the statistics published by the NSO. They have genuinely cautioned the prime minister not to go overboard with his enthusiasm over economic growth registered in 2005.
Indeed, Scicluna’s assessment last year that Malta was passing through one of its longest recessions has been proved right by the very same NSO statistics which show negative growth in 2003 and 2004.
As for the most recent set of figures, the NSO needs to do some explaining as to how the item listed as stocks and inventories is being calculated. In the eyes of some economists, the fluctuations in inventories are too wide for comfort. Indeed, the real GDP growth for 2005 was significantly pushed up by an increase in inventories. Assuming this is correct then the Prime Minister needs to ask himself whether it suites him to have an economy underpinned by unsold stocks.
In essence, higher inventories can be an indication of the country’s worsening competitiveness, which makes it expensive for industry to sell its goods abroad.
In real terms exports of goods and services dropped by 3.3 per cent last year, which is a clear indication that the country’s main motors are not functioning as they should.
Then there is the second important issue government has to consider when analysing the statistics. With Italian protocol funds and EU funds totalling Lm64 million, a brief calculation would show that without these funds the economy would have remained flat if not taken a negative turn.
Government may argue, as some of its exponents have already done, that the weight of EU funds in Malta’s economy justifies the whole crusade for EU membership. Twisting that argument around, Malta could be outperforming the rest with the EU funds that have come and will continue to come its way if the economic pillars of the country were functioning at their optimum.
Lawrence Gonzi cannot be satisfied with economic growth that is primarily fuelled by foreign funding. Economists warn that this is an unsustainable way of managing an economy. One fine day, the funds from the EU will start to dwindle apart from the fact that the funds on their own won’t create jobs.
The tourism statistics published by the Malta Hotels and Restaurants Association yesterday are a clear indication of the precarious state the economy is in. Tourism has not performed, despite CHOGM and the outlook for 2006 is very bleak. Manufacturing is also facing serious competitive issues.
And the warning signs are not coming from the Labour camp but from what have traditionally always been Nationalist friendly quarters. More and more people in business are feeling that this government is living in a cocoon. When the prime minister quotes the astronomical profits being made by the banks as a sign of a performing economy, people who manage small and medium size enterprises wince because they know that those profits are being made at their expense; at the expense of the economy in general.
Government needs to be less concerned with trying to create an artificial feel good factor and instead adopt a focussed strategy to address the problems that are dogging the productive sectors of this country.
It is not just Alfred Sant who is not feeling the positive impact of an economic turnaround. And the reason is simple; the turnaround has not yet happened and it would be a mistake if government acted as if the bad times are over.
A lot still has to be done and political rhetoric is definitely not the solution to the problems being felt by people on the ground.

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