CHARLOT ZAHRA spoke to economic analyst John Cassar White and veteran economist Karm Farrugia on the latest NSO GDP figures for the third quarter of 2009, which have shown that Malta has been officially for a year in recessionary mode with five consecutive negative growth figures.
“I believe that our recovery will take longer to happen. I will be a happier person if events prove me wrong.” John Cassar-White, economic analyst
What is your assessment of the latest NSO figures for Malta’s GDP, which have shown that the Maltese economy has contracted by 2.1 per cent during the July-September 2009 period when compared to the same period last year?
Not surprised at all. The fact that most of Europe is still slowly moving out of recession means that our recovery will take longer to materialise.
We always lag behind in the economic cycle because we have such an open economy that depends on what and when things evolve elsewhere.
Tourism-related activities, manufacturing and construction have continued to decline most. Other sectors, like financial services, are more resilient.
Most people acknowledge that things were not brilliant for our tourism industry this Summer.
I believe that there is more than the effect of the recession behind this. Our tourism may be facing structural decline because of lack of competitiveness.
Our manufacturing is also experiencing structural decline. Not enough investment is going in this sector, possibly because potential investors are not convinced by our competitiveness record.
This has to do more with low achievement standards in education than with rising wages.
The construction industry, like that in Spain and Ireland, has grown too fast too quickly. A painful correction is therefore inevitable.
The length of our recession is not very different form that of most other countries. Practically everyone acknowledges that this recession has been the deepest and longest for the past seventy years.
What is more important is that we take the opportunity to fix the inefficiencies in our economy that will hinder us from exploiting the opportunities that will arise once the recession is over.
It is not appropriate to compare our economy with that of other European countries. The profile of our economy is very different from that of most other European countries.
We have a very open economy greatly dependent on consumption patterns in other countries. We will experience growth after other EU countries because of the lag in the economic cycles that we experience.
Financial services continue to do well. We may have reached a plateau in e-gaming business.
Our manufacturing is continuing to decline possibly because of lack of competitiveness, rather than just the effects of the recession.
Construction is undergoing corrections as it is doing in Ireland and Spain.
We will start to grow after other EU countries because we depend on consumption increasing in these countries to boost demand for our goods and services. I believe that our growth will start sometime in 2011.
We cannot do much about changes in monetary policy. It will be the ECB that will decide when interest rates should go up. Many believe that this will happen some time in 2010. If we are still in recession at that time, this will be bad news for us.
I do not think there is any significant economic stimulus in Malta that will make a major difference to our economy when it is withdrawn.
Regarding the tightening of fiscal policy to raise taxes, this could be a dangerous development if our economy is still in recession when this happens.
Deteriorating public finances will pose a dilemma to any government when the economy is still in decline while public finances remain problematic.
I do not have the information available to Government that indicates a growth in late 2010.
However, I believe that our recovery will take longer to happen. I will be a happier person if events prove me wrong because what is important is that growth starts as early as possible.
I believe that our growth will take longer to materialise than in the rest of most EU countries.
This is because the EU growth on which we depend so much is likely to be initially weak and unemployment in Europe will remain high.
It is important that during this time we continue to address the structural weaknesses of our economy so that when the recession is over, we will prove to be more completive than other countries.
“I agree with Prime Minister Lawrence Gonzi’s prediction that we will be out of the recession in Q3 of 2010.” Karm Farrugia, veteran economist
What is your assessment of the latest NSO figures for Malta’s GDP, which have shown that the Maltese economy has contracted by 2.1 per cent during the July-September 2009 period when compared to the same period last year?
Exactly as I predicted a year ago during last year’s post-Budget debate in the media.
No recession normally affects all sectors. It has, nevertheless, affected us where it hurts most – where employment is densest and where the owners are generally Maltese citizens who usually benefit from profits but, naturally, suffer most when losses are incurred.
The best three examples are tourism, manufacturing and construction, followed by retailing and general services which appear to be hardest hit during the current quarter.
The financial and e-gaming sectors – mostly owned by non-Maltese –have either not suffered at all or marginally so.
The latest NSO figures, which show that
With the latest NSO figures, Malta has been officially for a year in recessionary mode with five consecutive negative growth figures. This is precisely as every non-partisan-inclined sensible economist predicted.
Malta has not been hit by a financial crisis, but by an economic one consequential to and at one remove from those whose recession was intensified by a preceding financial crisis. Hence on the whole we were not hit as hard.
However, our economy generally appears to behave in a delayed mode of between one and two quarters. That is why we do not yet seem to have recovered, but should see the “green shoots” by the end of next year’s first quarter.
By which time the exporters would probably be leading the way to growth.
Our exit strategy should not be sudden, but very cautiously gradual. We must first wait for a second quarter of growth, however small, before beginning our exit programme.
Then a year or two for consolidation and afterwards a commitment to balance the national budget and, later, to achieve a slow surplus programme until our national debt goes down to 40 per cent of our GDP.
Yes, I agree with Prime Minister Lawrence Gonzi’s prediction that the country will be coming out of the recession during the third quarter of 2010. That’s exactly as I have been harping on throughout this year.
When an economist predicts an event or a sequence of events he would do so only after studying previous similar phenomena in other related countries, but simultaneously and subjectively allowing for variances in the studied countries.
