The National Statistics Office’s publication of economic data relating to the 2022 GDP indicates some of the strengths and weaknesses of the country’s economic model.

Policymakers will undoubtedly crunch the numbers in the NSO report to understand the dynamics driving the economy and identify the winners and the losers among the different economic sectors.

The headline news is that the economy grew by 6.9 per cent in real terms last year.

Prime Minister Robert Abela tweeted that this growth rate is “double that seen in the euro area”, adding, “Despite the pandemic and the effects of the Ukraine war, our economy is nearly a tenth larger than what it was in 2019”.

Still, a close analysis of where this growth came from will reveal some sobering realities about the quality of this growth.

The drivers behind the GDP growth were service activities, industry, agriculture and fishing. For the first time in recent years, construction dropped by seven per cent.

Malta’s economy is now primarily reliant on services, as manufacturing is a fraction of what it used to be a few decades ago.

Still, not all services contribute the same quality of value added to the economy.

Accommodation and food service activities mainly drove the increase in service activities and, to a lesser extent, transportation and storage. The increase in the number of tourists visiting Malta last year is the main factor behind the growth in these services.

The government will claim that its policy to subsidise energy, fuel consumption and food costs has helped the economy grow.

However, a more realistic analysis is needed to determine the cost of these subsidies in the form of increases in national debt to be paid by future generations.

It is no wonder that the IMF has urged the government to start thinking of rolling back some of the expensive subsidy schemes on energy consumption as from next winter.

The generous subsidy schemes on energy and food prices have helped keep inflation lower than that experienced in other EU member states.

More subdued inflation must have encouraged households to consume more and buy even more durable goods. In the short term, this helps economic growth but one must ask whether relying on more public and private consumption for economic growth is sustainable in the long term. 

The country’s propensity to consume is also evidenced in the balance of payments deterioration in 2022. Imports rose by 9.7 per cent while exports rose by 6.4 per cent.

Malta’s open economy can only be sustainable in the long term if we export and sell more to pay for what we consume. 

Policymakers also need to ask what kind of jobs the economy is creating. Unemployment levels are low but economic growth is becoming more dependent on importing low-skilled, low-paid third country labour.

Rather than increasing production through more labour input, we must improve productivity through better educational achievement of workers and investment in technology. 

Many may conclude that the fall in construction activity is perhaps the best news in the 2022 mixed bag of economic data. GDP statistics fail to capture many non-financial elements contributing to people’s quality of life.

Policymakers need to focus more on challenging the current economic model built on promoting growth at all costs. 

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