Now that the Eurozone is coming out of the recession, when will we follow suit?
Charlot Zahra spoke to economists Karm Farrugia and John A Consiglio about Eurostat’s latest flash estimates for the third quarter of 2009, which saw slight growth following five consecutive negative growth periods, and its significance for the local economy
Karm Farrugia: “I would rather wait before accepting that the EU is out of the woods”
What is your reaction to the fact that the EU economy has returned to growth after five consecutive quarters of contraction according to the latest Eurostat figures published last week?
Thanks to the various and robust stimuli most European Union (EU) and other countries administered to their respective economies, the recession appears to have come to an end – except for the United Kingdom (UK) – after 5 quarters of slump conditions.
This time it had been feared that the recession, being global in extent, would lead to a mild depression, but, thanks to Keynesian thinking, it was averted.
Personally, I would rather wait for another quarter in positive growth before accepting that the EU is out of the woods.
To me this would mean at least recouping the contractions that occurred during this downturn period, not necessarily in terms of employment levels since operators are likely to be ultra-wary engaging more workers for another quarter or two.
How do you assess Malta’s current economic performance when compared with the rest of the Eurozone/EU? Why?
I don’t think we have experienced the extent and depth of the recession as most other EU members have done. But it will take us a few months longer to heal.
That’s the behaviour of our economy as could be judged during the last 18 months. My forecast is for end-April 2010 – latest end-June – to return to the growth path.
Do you agree with Finance Minister Tonio Fenech’s forecast in the 2010 Budget Speech that the Maltese economy will grow by 1.0 per cent in 2010 or is that forecast too optimistic?
Perhaps that’s the only moment in the Minister’s budget speech that I thought he was slightly optimistic.
In his place I would have budgeted for a flat growth, but perhaps we could possibly achieve the targeted 1.1 per cent of GDP if we perform very well during the second half of 2010, especially since the bulk of the budgeted investment projects would – or should – be in full swing during that period.
As an economist, for how long do you think that the Government will need to provide financial assistance to companies in financial distress?
As long as it takes, provided that such enterprises are not classified as lame ducks. Such assistance need not be limited to recessionary times, but should be provided all along to those who might encounter temporary setbacks in their export efforts.
John A Consiglio: “We came into the recession later than others, and we’ll probably be getting out later”
What is your reaction to the fact that the EU economy has returned to growth after five consecutive quarters of contraction according to the latest Eurostat figures published last week?
These are Eurostat figures, and as such therefore they would be the result of statistical compilations that would have been made on the figures emanating from all the 27 European Union (EU) States.
Collated statistics would not evidence the sharp differences between various Member States, particularly those often termed as “outliers”.
Not all the EU States have had five consecutive quarters of contraction, and not all, even when exiting the recession, would be on the same stage of the U, or V, or even W type of exit curve.
So one has to be careful about letting oneself being drawn into any sort of euphoria on these Eurostat figures.
Even without a recession, regional disparities are still a bugbear of the EU, and so, again, even when blue skies would be the norm again everywhere, there would still always remain some reason for not getting overly enthusiastic.
Does this mean that the EU has now come out of the economic recession or is it still not out of the woods yet?
As I have already said, we are still not totally out of the woods yet. Even in the “locomotive” nation that is Germany they are still very worried about some strong pockets of unemployment.
Figures for the UK, and Spain, and Greece, and others, still show they have quote a long way to go yet. So, no, the EU is not out of the woods yet. Even the ECB’s Jean Claude Trichet has expressed himself in such terms.
If the EU has not come out of the woods yet, when do you think that the EU will come out of the economic recession for good?
It is not only a question of looking at the EU to attempt forecasting when the EU will come out of the recession “for good”. Whilst the EU had its own sins helping it into the recession, objectivity also requires that one sees what were the impact on the EU of “sins” committed elsewhere, in the US for starters.
The EU is a very economically open entity, and its vicissitudes are very much also related to what is happening in the Asian and US economies.
Some of the news coming out of Japan is beginning to sound definitely positive, and that will certainly help. But it’s not the same everywhere. It still is not looking good in Russia and nearly all of its former satellite nations.
The Mediterranean economies – excepting possibly Italy – are still all far from recovering in tourism, exports, agricultural; production, and employment.
So the “when” is a very delicate thing to talk about. It might even be the case that if a year – say 2011 – be quoted, that would still not mean that every EU Member State has returned to the needed levels of annual growth in GDP and employment.
How do you assess Malta’s current economic performance when compared with the rest of the Eurozone/EU? Why?
Malta’s economic performance during this recession, when compared to the rest of the Eurozone and the EU, has been very satisfactory.
Our smallness has allowed us to see individual sector, or enterprise, problems earlier and more focused, and both “solvers” and “patients” displayed levels of appreciation and communication that must be the envy of other EU States.
We came into the recession later than others, and we’ll probably be getting out later too. A 1.0 per cent growth rate for our GDP in 2010 is not impossible to achieve, but even if we do get that by no means does that that mean that we would have inserted ourselves on the level-of-growth train that our economy really needs to get out of some of its perennially crucifying and strangling problems.
I will only be a happy man when I start reading that we’ve hit, over as long as three or four years, the 4 per cent+ GDP real annual growth levels.
We were a “chugging along” economy before the recession, we are a “chugging along” economy now, and anything below the figure I mention after the recession will still mean that we are a “chugging along” economy!
Sort of the old Italian song “Finche’ va, va....un po come la barca”.
As an economist, for how long to do you think that the Government will need to provide financial assistance to companies in financial distress?
Let’s be very careful about this whole business of; “For how long will Government need to provide financial assistance to companies in financial distress?”
Are we saying that we have now created a sort of automatic: “If I can’t make ends meet then there’s always the Maltese government that will pump money into me” attitude?
Financial assistance must be given only on clear terms, with clear numerical and date target outcomes and results, and clear repayment terms and dates.
Parliament must be vigilant on such funding expenditure, its terms, its quantums, its beneficiaries.
I’m somewhat sceptical of any situation where generic statements are made about assistance having been given to Maltese – or even foreign owned – entities, and nobody really knows who these would be or when they would be expected to start paying the nation back.
And this type of stance is, I would say, justified by what we have seen in some other countries where, even though they would not/are not out of the recession yet, yet in several cases many enterprises who did benefit from similar financial assistance are in fact already saying that they are refunding monies received, buying back shares taken over by government, and generally asserting a stance of “I’m alone on my own feet again, and that’s the way I always want to be”.
Money which Government gives/lends to business is – we must remember – money which the nation very badly needs to improve, even repair, some of the big lacunae which we still have in, among other things, our social services, our hospital and health care, education, our roads, the obscenely high utility tariffs, and other spots of our national body. Help yes, eternally no!
