With the publication of the GDP statistics for the last quarter of 2009 showing that the real GDP had contracted for the second consecutive quarter, and therefore confirming that Malta is now officially in an economic recession, CHARLOT ZAHRA spoke to four economic analysts – Edward Scicluna, Lawrence Zammit, John A Consiglio and Karm Farrugia – about the constituent elements of an economic recession and whether, in their view, Malta is indeed in a recession
Lawrence Zammit: Impact of recession “has been contained”
What are the constituent elements of an economic recession? Normally economists consider a country to be in recession when it goes through two successive quarters with negative growth in real GDP. This has not yet happened in Malta, but I do not think that we need official figures to tell us that the international economic recession has in fact hit Malta, but the impact seems to be contained at present.
The latest figures on unemployment, although they show an increase, have been affected by the early retirement schemes at the shipyards; and so we cannot as yet assess the impact on employment.
In view of the constituent elements of an economic recession, is Malta currently facing an economic recession or not? Why? I believe that our economy is being hit by the international recession because of the drop in tourism arrivals and the difficulties that have been experienced by exporting manufacturing companies.
Could you estimate how many people could end up losing their jobs as a result of the economic recession? Estimates of this nature are very difficult to make. However, Malta has traditionally had a resilient economy and this has tended to safeguard jobs. I trust it will be the same in this current recession.
What will the impact of the recession on the GDP figures for this year, when taking in consideration the contractions of the last two quarters of 2008? Will the Government be able to keep with its forecast of 2.4 per cent growth as forecast in the 2009 Budget? Why?
We have had a contraction in the last quarter of 2008, but not in the third quarter. In the third quarter we had real growth, both when compared to the third quarter of 2007 and when compared to the second quarter of 2008.
Government will be able to achieve its forecast of 2.4 per cent growth in 2009 if it allows itself enough space for manoeuvre.
We cannot waste our public finances giving persons refunds on VAT paid on the registration tax of their imported second hand cars. We need to use taxpayers’ money to support jobs creation.
What effective measures should the Government take to alleviate the recession, which has also hit the rest of the euro zone? Government needs to target specific sectors and seek to support them. We also need to make sure that whatever projects have to be started as part of the EU Structural Funds Programme, are started as soon as possible.
In your opinion, will the economic recession currently facing Malta will be a long and deep one or a shorter one? Why? It is generally agreed that the United States (US) economy will be the first out of the recession. How long the US economy will need to get out of the recession is still not known.
Once the US economy starts moving forward again, the Euro zone economy will follow suit. Malta will always lag a bit behind.
When was the last recession that hit Malta prior to this one? Was it as deep as the current one or not? We had a slowdown in the first half of this decade and we got out of it in much better shape than when it started. I stress that we have the means of not allowing this recession to be as deep as it is in other countries.
However it all depends on whether as a country we place the common good above personal gain.
Edward Scicluna : “Very-ill-equipped to project our GDP growth”
I just want to state that not only am I surprised but shocked that we are now a eurozone member and seem very ill-prepared to project our GDP growth for the next two or three quarters.
In November of last year we were already over four months into a recession and not only did we fail to report it, but were projecting a 3 per cent growth for 2008 and 2.4 per cent for 2009.
Nine months after the start of our local recession, the papers quote the Central Bank Governor stating that the Bank will be revising the growth downwards from the 2.4 per cent at the end of last year, but still will show positive growth.
The reasons that we cannot forecast in a difficult economic situation is feeble at best. Our economic model is linked strongly with the external sectors of manufacturing and tourism.
We have enough signals from other countries what was held in store for us. To be so wrong and so late is unpardonable.
Even today we hear the Prime Minister talking about the economy as if we were only marginally affected. If we continue living in this cuckoo-land we have ourselves to blame.
How can we gauge the remedy required if we cannot diagnose the patient as is. I expect the media to demand an explanation.
None of the other eurozone countries to my experience ever try to do this with their discerning business community and the public at large.
Karm Farrugia : “Yes, we are already in recession”
What are the constituent elements of an economic recession? When economic activity in a country - or even in a region, or the world itself - slows down to a point that real growth becomes negative in two consecutive quarters, that economy is officially in recession.
It is characterised mainly by a decrease in employment, investment and profits, eventually causing a decline in the relative Gross Domestic Product (GDP).
In view of the constituent elements of an economic recession, is Malta currently facing an economic recession or not? Why?
Yes, we are already in recession, though as yet not very severe: unemployment and under-deployment has been rising, real investment in the private sector declining, and reported corporate profits seriously dented.
Which are those sectors that are being hit most hard by the economic recession in Malta? Why? Obviously, the worst hit are the exporters, both of goods and services, such as tourism, which depend on the economic/financial health of their clients abroad, now sadly in deeper recession than ours.
Could you estimate how many people could end up losing their jobs as a result of the economic recession? That depends on how much stimulus to the economy is given by the Government, chiefly through additional infrastructural capital outlays that create jobs, as well as the current Government policy of preserving existing ones.
In Malta we have a habit of camouflaging unemployment, especially in the public sector, rendering it difficult to make predictions.
What will the impact of the recession on the GDP figures for this year, when taking in consideration the contractions of the last two quarters of 2008? Will the Government be able to keep with its forecast of 2.4 per cent growth as forecast in the 2009 Budget? Why?
The Central Bank has already announced a lowering of the forecast GDP growth figures for this current year. It is, however, still in positive territory.
I doubt whether we could achieve any positive growth however small, unless the Government stimulates seriously and expeditiously.
What is a more realistic forecast for GDP growth in Malta for 2009 in view of the latest growth figures issued by the NSO? If we could “break-even” in growth efforts during this year, I will be happy.
What effective measures should the Government take to alleviate the recession, which has also hit the rest of the euro zone? Besides continuing with individually-structured aid packages, the Government would be wise to cut down on its recurrent budget and spend even more on infrastructural job-creating projects in the Keynesian manner with the “multiplier” effect well in focus. Even if we go above the now ludicrous 3 per cent deficit-to-GDP ceiling.
In your opinion, will the economic recession currently facing Malta will be a long and deep one or a shorter one? Why? I hope it will neither be deep nor long. This depends mainly on our “economic management” with more emphasis on capital spending and less on fiscal “prudence”.
When will Malta start seeing the light out of the tunnel? If we seriously take action as suggested, we might bottom out by mid-year, hang on there for a few months, and restart growing early next year. That’s my prayer.
When was the last recession that hit Malta prior to this one? Was it as deep as the current one? We had lapses in our growth pattern less than a decade ago, but they were nothing like what we are experiencing now.
John A Consiglio: “We really had two successive quarters of negative GDP growth” in 2008
What are the constituent elements of an economic recession? I always like to observe both the irregularity, and the extent, of how common recessions are. Recessions are sometimes as irregular in an economy as they are common. Sometimes they are close together, and sometimes they are far apart.
According to an old rule of thumb – which many economic commentators in recent times seem to have adopted as almost dogmatic theory – a recession is a period of at least two consecutive quarters of declining real GDP.
But this rule may in practice not quite always hold. To quote a situation out of US experience, N.G. Mankiw, who is Professor of Economics at Harvard, holds that when looking at revised data there it becomes very necessary to accept that the existence of a real recession can only be deduced by looking at a wider variety of economic time series than just GDP and unemployment, and that one needs to use one’s judgement very carefully when picking the starting and ending dates of recessions.
But the main constituent elements, that is, decline in growth of both real consumption and investment, to which one might add increasing differences in the volatility and differences of the declines of these two aggregates, those essentially probably remain.
In view of the constituent elements of an economic recession, is Malta currently facing an economic recession or not? Why?
On a quarter-on-year GDP basis Malta went from a positive GDP growth rate of 3.2 per cent in the last quarter of 2007 to a negative growth of 1.2 per cent in 2008.
In terms of just 2008, from the third quarter growth rate of plus 2 per cent we dropped to, as said, the negative 1.2 per cent in Quarter 4.
We really had two successive quarters of negative GDP growth in the last full half of 2008, that is, minus 0.3 per cent in Quarter 3, and then even worse in Quarter 4 at -1.0 per cent.
The average quarterly rates for the years 2005 to 2008 work out as follows – 2005: 1.02 per cent; 2006: 0.8 per cent; 2007: 0.9 per cent; 2008: -0.2 per cent.
Here it isn’t only the fact that over a four year span we have gone down from 1.2 per cent growth to a negative 0.2 per cent that is worrying, but, to me, much more so the fact that when one keeps looking at these very low rates then one should really worry at their paltry levels.
The Maltese economy needs to grow at much higher rates than these and - as I say in paper for a new European Documentation & Research Centre book on “Malta-Five Years after EU accession” - the EU certainly cannot lay any claim that our accession to the Union has been in any way influential in assuring for us growth rates sufficiently high to assure sustainability of any new economic structure model for our country.
As always happens, here we have moved into recession after other countries, but that does not mean that we will also move out of recession after them.
Ours is a small economy, and it could, under certain circumstances, be the case that we in fact get out of it even well before other countries – much bigger than us – do.
Which are those sectors that are being hit most hard by the economic recession in Malta? Why? The sectors most hit have been tourism and manufacturing exports. As we keep saying, the key factor is that of demand.
Domestic demand is so far looking as if it is holding up better than export demand, even if of course the sharper external demand drop’s multiplier is now increasingly working its way through.
But, as we all know, out there in the countries which send us most tourists, and the countries which buy most of our manufactures, the situation is much worse.
Firstly, we need to increasingly tap potentially new tourism markets – from China, India, language students, sports tourism, and elsewhere – and increase marketing efforts for those products where, possibly, external demand may have held up despite the recession.
Then secondly could this be the time to start some serious thinking and research on some new economic model, that is, one which is totally different to our current one of tourism, and building and construction.
Could you estimate how many people could end up losing their jobs as a result of the economic recession?
Unemployment has now gone over the 7,000 mark for the first time in a long time. But I will not be surprised if that figure again starts falling by the third quarter of this year, as industry order books react positively to some early positive signs some economies, particularly the US, have suggested over the past week.
Thankfully we live in a society where – probably because we are small – employers are possibly much more conscious of the social and psychologically damaging effects of firing people, than in bigger countries.
In the past, all shades of governments have shown tremendously original and innovative ideas for “making work” for our citizens. And I am confident that the same will be happening here....if for no other reason than the simple one that politics so demands of our politicians.
What will the impact of the recession on the GDP figures for this year, when taking in consideration the contractions of the last two quarters of 2008? Will the Government be able to keep with its forecast of 2.4 per cent growth as forecast in the 2009 Budget? Why?
No, I do not think that, for the whole of 2009, given the present trends – the first two months have already flown, and they haven’t been exactly happy ones – a 2.4 per cent real growth rate for the economy is achievable. I’ll be a very happy man if we manage a 1.5 per cent rate for the whole of 2009.
What with the June European Parliament and local council elections I do not foresee many boat-rocking or bold challenging decisions being taken in the economy before then.
But after that I’m sure that government will speed up all those programmes and projects where EU funds have already been promised and committed to Malta, and so the coming summer will probably be seeing all ministers working very very hard.
If all of this crystal ball vision really comes about, then I have no doubt that ours will be a short recession, even if, as I hinted, the change may not yet be such as to ensure annual economic growth rates at the level which would make us deserve a possible description of from the depths to the peaks.
What is a more realistic forecast for GDP growth in Malta for 2009 in view of the latest growth figures issued by the NSO? I don’t have readily available figures indicating when was it that Malta had two consecutive quarters of negative real GDP growth, but it must have been quite some time ago, and that speaks very highly for what this wonderful nation of ours has done over the past quarter-century at least.
