After three years of restricted social interaction, consumers have rediscovered the joy of retail therapy during the festive season. While the volume of business is still below the levels recorded in the pre-COVID period, this boost in retail sales is most welcome to the many companies that have been squeezed by the pandemic slowdown.
Economic reports confirm that the main reason behind consumer enthusiasm this year is the pent-up demand for a return to the normality experienced before COVID instilled fear in most people. Starting on Black Friday, people's desire to grab a bargain lasted until the year’s first week.
It seems that most sectors, including hospitality, catering, retail and entertainment, experienced increased sales even if the distribution may not have been spread well enough. As usual, Sliema, Valletta and St Julian's were the preferred target destination for the young and not-so-young. Of course, one needs to wait for official statistics to confirm whether the anecdotal positive comments by the business lobbies were indeed correct.
The Maltese economy is heavily dependent on private consumption.
If the trend of increasing retail activity persists throughout 2023, the economic predictions made during the budget will be easier to achieve. Still, the risks of adverse headwinds dampening consumer confidence must not be underestimated.
The persistence of high inflation remains the most significant risk, as many economists believe the targeted inflation rate of two per cent is unlikely to be achieved in 2023.
The increase in wages and salaries for most people will remain modest, even with the record cost of living allowance, and not enough to compensate for the rising cost of living.
The impact of the generous subsidies on energy and food prices has been substantial and the main reason why Malta’s official rate of inflation is one of the lowest in the EU. But this fiscal strategy comes at a high cost.
With the accelerating increase in public debt to fund these subsidies, international organisations like the IMF advise the government to start reviewing its energy support from the beginning of next winter.
This would make sense from both the fiscal and moral perspectives.
Subsidising energy prices in a non-discriminatory way will undoubtedly lead to waste when most countries urge their citizens to economise on their energy use to optimise the use of public funds.
It would be wrong for policy-makers to give the impression that the renewed consumer confidence evidenced by a retail spending recovery in the last few weeks resulted from some magic wand that no other country can wave. The cost of the subsidies financed by taxpayers’ money to create a feel-good factor in the community is often hidden from the public’s eyes.
But today’s debts must be paid by the next generations. Fiscal rectitude is always the golden rule for the management of public finances for the common good.
The economic game changer will be a strategy that encourages upgrading the different economic activities through investment in people’s skills. Policymakers must be more open in defining the added value of tourism, financial services, the retail sector and the gaming industry for the Maltese economy.
Spending our way to minimise the debilitating effects of our structural economic weaknesses can, at best, only be a partial solution. We must ensure that, for every euro spent on consumption, we create at least an equivalent value we can sell to others.
Ultimately, no one owes us a living.