22 March 2006

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Business Today

Tonio Fenech defends GDP growth figures

James Debono
The parliamentary secretary for finance is not bothered by criticism made by various economists over the growth statistics published last week, yesterday insisting there is no discrepancy between overall growth and a drop in exports of goods and services.
Only last week, the former MCESD chairman Prof. Edward Scicluna expressed his amazement at how the economy grew by 2.5 per cent despite a drop of 3.5 per cent in manufacturing and tourism. But Scicluna was not the only one to shed doubt on government’s over-optimistic interpretation of the figures published by the National Statistics Office. Former finance minister Lino Spiteri also cautioned the Prime Minister against interpreting GDP growth at face value.

Fenech yesterday tried to unravel the puzzle pointing out that growth in the services sectors, especially the financial sector and a build-up of stocks amounting to Lm29 million in 2005, were main drivers to push up growth levels.
This was the first admission by a government minister that the build up in stocks had an upward impact on GDP.
“The build up of stocks is production as well. After all, the GDP is a measure of production,” Fenech told Business Today.
Fenech also contended that the performance of the manufacturing sector in 2005 was not homogeneous.
“Whilst various sectors improved their performance, others started the year with significant drops and then registered improvements in the latter part of the year.”
On Sunday MaltaToday revealed that the component of GDP listed as gross capital formation, which includes EU and Italian protocol funds, jumped up by 32 per cent in real terms to the extent that economic growth in 2005 can be attributed to this rise.
Fenech acknowledged that the item ‘gross fixed capital formation’ showed a sharp increase due to an increase in the government sector's investment, mainly in the construction of the new road network, the construction and the equipment of the new hospital and the various large scale construction projects in tourism and other services.
Fenech also attributed the rise to government’s acquisition of a new patrol boat and the investment made by many enterprises in new equipment to improve their productive capacity.
Despite the sharp rise in government sector investment, the parliamentary secretary still insisted that economic growth in 2005 was a sustainable one.
“Investments undertaken in 2005 definitely contribute to sustainable economic growth. The investments in infrastructure and in our productive sectors do contribute to sustainable development and growth.”
Reacting to former finance minister Lino Spiteri’s suggestion to take a deeper look at the statistics and analyse whether the 2.5 per cent growth, is due to the sharp change in inventories over 2004, Fenech insisted that the item ‘changes in inventories’, which is included in the expenditure approach method, has no impact whatsoever on the level of the GDP at current prices.
“The level of the GDP is established from the production approach and not from the expenditure approach to GDP. “Whether the changes in inventories item is positive or negative is immaterial to the GDP level at current prices,” Fenech told Business Today.
Fenech also reacted to comments made by Prof. Edward Scicluna.
“It is not clear how Prof. Scicluna managed to deflate the production side of the GDP and state that the combined major sectors of an open economy, manufacturing and tourism fell by 3.5 per cent in real terms.”
According to Fenech, in order to deflate the
output side of the GDP, a significant number of producer price indices for the goods and services sectors are required. Since the indices are not presently available for either manufacturing or tourism, it is difficult to reconcile the claim made by Scicluna, Fenech told Business Today.


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