Politicians, economic analysts and business leaders had been waiting for the assessment of the IMF and rating agencies on how they see the global economies evolving in the coming months as the COVID-19 pandemic takes its course.
Their judgment is now out, and it makes very sobering reading.
The good news for Malta is that current forecasts for the Maltese economy are generally more benign than those for other European Union countries. But there are significant variances in the assessment of the International Monetary Fund and those of Fitch and Moody’s.
According to the IMF, the Maltese economy will revert from a real GDP growth of 4.3 per cent in 2019 to a decline of 2.8 per cent at the end of 2020. But in 2021, the Maltese economy should revert to the healthy growth of seven per cent. Fitch’s forecast is grimmer, predicting a GDP contraction of 5.9 per cent this year and a growth of 3.6 per cent in 2021.
The government hailed these projections as further proof of the excellent way it is handling the medical and economic crisis and the underlying strength of the Maltese economy. But it would be dangerous to rely too much on the IMF projections that are only as good as the underlying assumptions on which they are based.
The return to normality has become the Holy Grail of politicians, business leaders, the medical profession and everybody else.
So many medical and economic questions remain unanswered.
When will the virus spread be stopped? When will a vaccine be available to provide immunity to the world’s population? Will the vaccine be the silver bullet that will ensure there will not be a secondary spread of the virus? When will people feel safe again to return to work? When will consumer confidence return to boost demand in consumption and travel? Will the global financial system cope with the pressures of providing liquidity to businesses that are struggling to cope with the collapse of their activity?
Is it realistic to expect that the new normality will be the same as the old normality that prevailed up to a few weeks ago? Will phased easing of social distancing measures have to alternate with the reintroduction of restrictions as case numbers decline and rise again from time to time?
The IMF’s and rating agencies’ economic models, on which they base their projections, are built on consensus opinions of the most realistic answers to these questions. One just hopes that the assumptions on which these forecasts are based turn out to be reliable.
Even before the latest IMF economic forecasts were published, the global economy was facing some very tough challenges. Malta, too, has a list of pre-crisis issues that need to be addressed to underpin the economy with more robust foundations that guarantee sustainability.
The COVID-19 crisis has added some more items, including the need to strengthen our health system to cope with the worsening demographic pressures. Only more productive investment in our health system will make the next recession as shallow as possible.
This is a time when the short term management of the medical and economic impact of COVID-19 should get the full attention of our political and business leaders.
The time will come when our leaders will need to engage in a soul searching exercise to determine how we plan for the long-term well-being of our society.
We will certainly need to fine tune our social and economic strategies.