A year of production in review

The Economic Policy Division shares its views on Malta’s economic performance last year. The Division asserts that the sluggish performance of the world economy had affected only a section of the Maltese economy and that, if the electronics manufacturing sub-sector were to be removed from the equation, real GDP growth over last year would have amounted to 6.7 per cent.

The weakness in the international economic environment in 2001 was felt mainly in the electronics sub-sector, along with an additional post-11 September impact on the tourist industry. In the evaluation of year to year changes, it will be noticed that the year 2000 saw peak performance in most areas of the Maltese economy, but that even in the sectors most affected by the slowdown, aggregates in 2001 were at levels that were still considerably higher than 1999 or any other previous year.

The foreign origin of last year’s slowdown is reflected in the seasonal and sectoral distribution of changes in economic activity in 2001. As a result, the strongest impact on the negatively affected sectors was in the fourth quarter, and the effects were focused on the electronics sub-sector and, to a considerably smaller extent, on tourist services.

On the income side, the slowdown was absorbed in the flow of profits abroad. Total profits declined marginally, by 1.7 per cent, with the reduction occurring mostly in the last quarter in the electronics sub-sector. At the same time, income accruing to local resources was largely unaffected by the slowdown, with employment incomes up by 7.5 per cent.

As a result of the reduced profit flows abroad – from their record level in 2000 – the gap between GDP and GNP growth widened. Nominal GDP growth, which records the expansion of all economic operators located in Malta, amounted to a nominal 3.9 per cent. This translates to a negative 1.0 per cent change after correction for inflation. In contrast, the GNP, which measures income received by Maltese residents is not affected by changes in dividend payments paid to resource owners abroad. Hence the GNP increased by 8.6 per cent, equivalent to an inflation-adjusted rate of 3.2 per cent.

In the agriculture and fishing sector, output increased by 7.1 per cent, with the bulk of the output change being recorded in the profits component.

In the construction and quarrying industry, the recovery that started in 2000 continued. The 9.7 per cent output increase for 2001 was spread over all four quarters.

Manufacturing output declined by 7.9 per cent to Lm314.6 million compared with Lm341.7 million during 2000 and Lm290.3 million during 1999. Profits reported by manufacturers declined 19.7 per cent, while employment income rose by 4.5 per cent. Excluding electronics, manufacturing output rose by Lm22.2 million (9.4 per cent) with employment income up by around Lm9.4 million (6.4 per cent), and profits up by Lm12.7 million (14.5 per cent).

In the last quarter alone, manufacturing output excluding electronics was up by Lm6.2 million (10.2 per cent) from the same period of the previous year. Employment income increased by Lm3.2 million (8.7 per cent), while profits were up by Lm2.9 million (12.6 per cent).

The performance of these as well as the other sectors of the economy shows that the effects of the sluggish performance in the world economy were limited to a segment of the economy. Real GDP growth excluding electronics was at a 2.1 per cent rate for all of 2001, while real GNP growth excluding electronics was 6.7 per cent, as shown in the following table. The underlying state of the economy as well as the contained effects of the international slowdown support the expectation of a rebound in the light of indications of an early revival of world demand.