That the global economy and the eurozone economy in particular have started to show signs of a slowdown has been known for some time. Admittedly there have been gains in employment and increases in wages but international trade has continued to weaken as a result of the trade wars, with the imposition of import tariffs. Economic growth in the eurozone area was 0.2 per cent (therefore flat) in the last quarter of last year and 0.4 per cent (again flat) in the first quarter of 2019, when analysed on a quarter on quarter basis.
The expectations for the second and third quarter are also not exceedingly positive. Growth for the whole of 2018 was 1.9 per cent and expected growth for 2019 is 1.2 per cent – therefore a lower growth rate.
Moreover uncertainties continue to make themselves felt, especially political tensions between countries, the possible escalation of the trade wars, economic weakness in a number of countries, and last but not least, Brexit, with the threat of the new UK Prime Minister, Boris Johnson, that come what may the UK shall be leaving the EU on Halloween Night (October 31).
It is therefore not surprising at all that both business and consumer sentiment are dampened. The sector that seems to have been most hit (also because of the trade wars) has been the manufacturing sector, as the services sector has been described as resilient.
As such, at a press conference last week, Mario Draghi, the president of the European Central Bank, announced that, contrary to plans laid out last year, the so-called quantitative easing programme shall continue. Interest rates are being maintained at their current levels at least till the middle of 2020, and “as long as necessary”. The objective is, “to maintain favourable liquidity conditions”.
The Federal Reserve of the US has also reduced its interest rates, in spite of a strong economy. It just did not want to take any chances. It has recognised the same signals that the ECB has recognised, and would rather act now than risk the US economy deteriorating.
Where does Malta stand in all of this? The Spring Forecast on the Maltese economy published by the European Union points to a continued very good performance of the Maltese economy.
There will always be opportunities for us to exploit
This would not mean that all sectors of the Maltese economy would be doing well. For example, the challenges faced by the manufacturing sector in the eurozone would also be faced by manufacturers operating in Malta as well, especially since they are export driven. However, overall the expectation is that the Maltese economy will grow by 5.5 per cent in 2019.
Therefore these challenges which Draghi spoke about at his press conference last Thursday may seem light years away from us. Our economy is so small that there will always be opportunities for us to exploit. Maybe we should start to appreciate that we can be masters of our own destiny unless we score economic auto goals.
This could be the case. However, I also believe that, just as no man is an island, so our economy cannot be oblivious of international developments, in spite of the fact that geographically we are an island. The fact that our economy continues to grow in such an international economic and political scenario is more of a testament of our economic policies than anything else.
On the other hand, we must continually assess the performance of each and every sector of our economy, as over the decades, we have shown that our economic resilience is mainly due to the diversity of our economy, where each and every sector has its significance.
We should make hay while the sun shines (not in terms of building development as was stated by someone) with an economy performing strongly. What this means is that we look ahead and start making the necessary adjustments and alignments in our economy to ensure that it remains resilient as it has been for the last six decades.