Manufacturing still suffering from depressed demand - FOI

According to the Federation of Industry’s latest Industry Trends Survey, the forecasts of export oriented firms for this year’s second half are more pessimistic than the firms’ sentiment was for the second half of 2001.

The FOI reports that business optimism, export order books, local order books, and capital expenditure on land and building were increasingly more negative while capital expenditure on plants and machinery, and production volume are both less positive. Export firms also predict that costs would increase at a faster pace than prices, and profitability is also expected to experience a sharp deterioration.

Regarding locally oriented firms, the FOI asserts that the situation cannot be said to be good, but in many cases the forecasts are less negative than those of the preceding six months. Within this scope, business optimism, export order books, local order books, and capital expenditure on land and buildings are all less negative. Production volumes are up, while capital expenditure on plant and machinery is down. As in the case of the export oriented sector, firms are expecting a sharp increase in costs that will be only partly compensated for by a small increase in prices. However, profitability forecasts tend to point towards a slightly less negative situation than before.

It is clear that the manufacturing industry in Malta is still suffering from a depressed demand situation that has been a common characteristic in several of its main export markets. Industry has been doing its outmost to increase its productivity and reduce its costs of production, but, the FOI explains, these firms are operating in a difficult environment and only those that are the more competitive will stand a chance to improve their performance while the uncompetitive ones will find great difficulties to survive. International competitiveness in products and services is the best indicator to measure the chances of survival or otherwise of our producers of goods and services, and, ultimately, of the Maltese economy in general.

The FOI cites a recent EU report (Report on macroeconomic and financial sector stability developments in candidate countries? April 2002) which had stated about Malta, "Maintaining external competitiveness will be crucial for the coming years to reduce potential risks. In this regard, it will be fundamental to maintain wage growth moderation and to continue with structural reforms to increase the competitiveness of the Maltese economy."

The FOI reasserted that it has long been aware of the fact that many of the changes Malta is introducing in the social, environmental and other fields to upgrade its economy and standard of living of its citizens will involve industry in additional costs. This is why in order to offset these costs the FOI has been campaigning for several years for a reduction in the government induced costs. These, it explains, would include all those goods and services which, through government legislation or administrative action, such as the setting up or sanctioning of cartels or monopolies, have a cost for the end user that is unreasonably high when it is compared to that of our competitors.

According to the FOI, it is now even more important than ever for the social partners to put competitiveness as the most important factor in all their actions. Unfortunately, while everyone pays lip service to competitiveness not everyone is prepared to act accordingly. It is important, the FOI advises, for one and all to start putting words into deeds.