A new year has started and people will be making forecasts of what will be happening in the coming 12 months. We have not yet understood that both from a personal perspective and from a non-personal one, very rarely does the year end the way we would have envisaged it would end.

Well, we can most certainly say that by the end of the month, barring any last-minute surprises, Malta will have a new prime minister. Will a new prime minister represent a sovereign risk? Certainly not, as all prime ministers since Independence in 1964 have sought to promote international investment into Malta – some with great success and others with less success. However, the core message will remain the same: Malta is open for business. What may be uncertain is whether international investors would come in significant amounts.

Will there be a change in direction in Malta’s economic policy? What is interesting is that neither of the two persons aspiring to become prime minister seem to have experience in economic policymaking. As such, a great deal will depend on whether the current finance minister and the current economy minister will be retained in their post. A great deal will also depend on the economic advisers the future prime minister will appoint as part of his office.

I do not believe that the basic fabric of the economic policy of the last six years will change. After all (if we are honest about it), it was based on a formula that was already there under previous governments. On the other hand, I would expect some tweakings here and there. Where those tweakings will be will again depend on the advisers that the incoming prime minister will have and the political direction he (how I wish we will say ‘she’ one day when referring to the prime minister) will set for his government.

Irrespective of who becomes prime minister, we should expect some changes in direction, from both regulators and banks. We are already experiencing this at the moment and we should expect it to become more marked in the coming months. Rules related to money laundering, governance and compliance will be more strictly enforced, probably even to the point of going beyond what the legislator would have envisaged.

What the coming year may be bringing is a dose of sobriety in the economy

Once such rules become more strictly enforced by the regulators, banks will be changing their relationship with their clients. It will come as a shock to most clients, especially the bona fide ones. So excellent customer service will need to support such enforcement unless we want a lot of angry people around and a loss of trust in banks.

The skills shortage in most areas may force some international companies operating in Malta to shift their operations elsewhere. Again, we have started experiencing this already and there may be more of it in the coming months. This could ease population pressures as non-Maltese workers might leave the country but could present a shock for Maltese workers working with such companies.

This leads me to the next point, which is that the rate of growth of the Maltese economy will slow down. It will not slow down across the board and, therefore, some sectors or companies operating in such sectors, may actually experience a downturn, while others will continue growing. For persons working in these sectors or with these companies, this could mean having to look for a new job or having to accept no increases in salaries.

Getting to the point of salaries, we need to admit two things. First, the increase in salaries has become unsustainable for a number of companies operating in Malta. Such companies will soon be facing some stark choices: Reduce the size of their operation? Close down the operation totally? Get employees to accept a reduction in incomes, by say reducing allowances?

Whatever choice is made, we need to accept that a number of companies have become uncompetitive because they have followed a short-sighted policy of matching the salary expectations of their employees rather than provide a first-rate employee experience.

The second aspect related to salaries, and which we need to admit, is that the increase is salaries has been well below the increase in property prices. As such, on the one hand, salaries have risen too fast for them to be sustainable by employers and they have risen too slowly to match the increases in the price of property.

Let us not argue whether we have a property bubble or not (it is an academic discussion; but if it happens, there simply cannot be anyone who can rightfully claim that one did not see it coming), but the price of property has to go down because demand (the quantity demanded at a specific price) will be decreasing. Whether this decrease in the price of property will burst a bubble or whether it will lead to a soft landing, remains to be seen. A prediction either way will not be appropriate.

In my opinion, what the coming year may be bringing is a dose of sobriety in the economy. We need to be prepared for it as otherwise people could get badly hurt. This will mean a redimensioning of our expectations to get them aligned with a situation that will continue to evolve in the coming months. It is an adjustment process that we will have to go through.