What I find fascinating in the European Commission’s latest forecast of the Maltese economy is not so much its inherent glow, which was expected anyway in the wake of the International Monetary Fund’s recent similar analysis, but the fact that real economic growth, which peaked last year, was achieved concurrently with a continued reduction in the sovereign debt to as low as 1.6 per cent of GDP from 2.1 per cent in 2014. Barely three years ago, economists would have rejoiced had this deficit dropped only to five per cent.
Equally satisfying is that such a high growth rate, double what is generally reckoned as satisfactory in normal circumstances, was chiefly consequential to a high rate of economic (not just financial) investment in both the private and public sectors of the economy, manifestly in energy projects, so vital and yet so abandoned over a span of years with perennial government budget shortfalls.
The real overall wage bill improved satisfactorily,still permitting entrepreneurial profits their share of the surplus
Not unexpectedly, such a phenomenon would need to slow down in the medium term from 4.9 per cent in 2015 to 3.9 per cent in 2016 and to 3.4 per cent in 2017, yet still ranking us among the elite in Europe, in close proximity to Germany, the nation par excellence.
And yet, while all this was happening, the real overall wage bill improved satisfactorily, still permitting entrepreneurial profits their fair share of the process’s surplus as well as drawing towards productive activities a substantial number of the unemployed to such an extent as to reduce their rate to a record low for at least two decades and even to encourage imported labour.
No wonder, therefore, that private consumption, which is reckoned to be the best indicator of a nation’s living standard, expanded by 5.1 per cent last year and is targeted to become the prime growth driver during the foreseeable time horizon, contributing annually over 1.5 percentage points in growth.
Even our visible exports, stagnant for several years, should revive, according to the European Commission, reversing the “negative contribution of net exports to growth” lately experienced.
Curiously, what was perhaps feared most by economists in the EU was inflation being so low over too long a period of time as to risk morphing into deflation, not just disinflation, a state of affairs worse than the dreaded German historical hyper-inflation of the 1920s.
Ideally, inflation should be just below two per cent for a healthy growing economy, according to many economists. Ours is forecast to be slightly above two per cent next year, mainly due to the cessation of the hitherto continuing reductions in energy prices to consumers, particularly since the current global oil prices are expected to recover from their record low level.
All in all, the European Commission seems to be more than just satisfied with Malta’s management of its economy through a tight hold on public financing, encapsulated in the very heading of the review: ‘Malta – robust growth outlook’.
Karm Farrugia is an economist.