The impressive economic growth of the last few years may have nurtured widespread expectations that the economy would continue to grow substantially for several more years. Still, decades of dispassionate observation of how free market economies pass through divergent cycles every few years proves that economic slowdowns are not uncommon.
According to the Central Bank of Malta, business sentiment towards commercial activity in the last quarter of 2024 reached its lowest levels since 2021, suggesting a slowdown in activity. For clinical economic observers, this is hardly surprising.
Malta’s economy remains highly dependent on consumer consumption, mass tourism, and construction. When these sectors falter, the knock-on effect on business confidence is inevitable.
In 2024, just nine per cent of companies reported an improvement in business conditions, 25 per cent less than the previous year. With record tourism numbers, the tourism industry reported the highest incidence of improved activity.
This is not surprising as tourism policymakers continue to promote mass tourism despite the rhetoric about the need for a strategic shift to quality tourism that aims for smaller numbers of tourists with more spending power.
The demand for property sales and letting remains “resilient”. This is undoubtedly a result of some investors still believing that the country’s dependence on imported labour will continue to grow and stimulate demand for more houses. The Planning Authority seems to share this belief as there is no credible evidence of limiting the expansion of the construction industry.
It is the right time to start managing the realities of a slowing economy. Maltese businesses that contributed to the Central Bank study are correct in arguing that “global economic uncertainties” are partly to blame for reduced optimism.
Malta’s open economy is not immune to economic shocks on which we have no control. The prospect of more economic stagnation in the EU, the risks of current geopolitical dynamics, and the volatility in the commodities market, especially oil, will invariably affect us.
Hopefully, the government will manage this economic slowdown judiciously to ensure that much-needed structural reforms are not shelved or even postponed in the hope of mitigating the impact of reduced growth.
The business community, for instance, fears that rising labour costs are the most significant threat to their growth expectations. One still needs to see the robust political will behind the recent proposed labour market reforms.
How will the increasing number of economic activities that depend on imported labour be able to cope if the intended reforms are implemented effectively?
As summer approaches, will operators in the mass tourism industry be clamouring to disband labour market “bureaucratic inefficiencies” that hinder the liberal importation of workers?
If the country fails to address the overdependence on consumer consumption, mass tourism and the construction industry, the adverse effects of economic slowdowns will become more severe. For too long, policymakers have ignored the challenges threatening the country’s economic sustainability.
It is time to act. Hopefully, the Vision 2050 exercise will not be just another strategy document that recycles the long list of strategic reform documents of the last decade on the various socio-economic sectors, including tourism, education, public services, physical infrastructure, investment, and social well-being. Visions can soon become mirages and nightmares unless underpinned with a steely political determination to deliver reforms in a reasonable time.
Economic slowdowns have a silver lining: they challenge policymakers and business leaders to engage in an exercise to define how best to chart the way forward to help the country and the people prosper in the long term despite temporary setbacks.