The much-anticipated European Commission’s Spring forecasts are out. They are in line with the government, the IMF and the rating agencies’ predictions on how the Maltese economy is likely to fare over the next two years.
The silver lining in these sombre forecasts is that Malta should not be affected as severely as other EU countries as a result of the pandemic.
The abundance of single-digit figures that pepper these economic forecasts, however, may lull some people not familiar with economics jargon into a false sense of security. GDP is expected to fall by 5.8 per cent in 2020 only to rebound to 6 per cent in 2021.
The national debt is expected to rise from about 43 per cent to 51 per cent. These indicators are better than those forecast for the whole of the EU and much better than those for some countries like Italy.
The narrative of the Commission’s forecasts is much more meaningful. It highlights the difficulty in measuring risks caused by the uncertainty that surrounds this medical and economic crisis.
Tourism, for instance, is the sector that is most likely to suffer from the crisis. New medical precautions will undoubtedly affect the economics of travelling. But, more importantly, they will affect consumers’ perceptions about their safety when boarding an aeroplane.
Malta’s dependence on tourism for employment and economic growth may have been underestimated for too long.
The assumptions underlying the various forecasts published in the last few weeks are not entirely clear. But few are predicting that tourists will start taking to the air to spend their holidays in the sunny Mediterranean anytime soon.
Those working in the tourism industry will see their income cut in the coming months.
This will, in turn, affect their desire to spend money on activities that are less than strictly essential.
The strength of the local banking system has once again come in for praise by the Commission.
This comment shows how misguided former prime minister Joseph Muscat was when, a few years ago, he criticised local banks for not being more adventurous in their lending. Banks will now need to support small business to survive this crisis and this may affect their profitability.
The public investment in infrastructure projects will help boost demand for goods and services that will support economic growth.
It would be ideal if these projects, especially those relating to making improvements to our roads network, were accelerated at a time when we expect a lull in tourism. Perhaps the most relevant comment made by the Commission is that, as a result of Malta’s small and open economy, the global economic developments post- COVID-19 may weigh on the pace of recovery more strongly than assumed in the forecast.
Prudence in public expenditure should be the gold standard used by the government to ensure that our hard-earned economic resources financed by taxpayers are not squandered.
The propensity of the Maltese to save is another redeeming factor in the backdrop to this crisis, highlighted by the Commission in its report. The government will need to use the public financial war chest judiciously. Business will need to dig into their pockets to inject new money into their enterprises when the crisis is over. Individuals may also need to resort to their savings to weather this storm.