The economic news from around the world continues to show positive signs about the recovery. However, although some indicators have turned positive, we are not yet experiencing economic growth and we probably will not have any till next year.
There has been positive news since the latter part of the first half of this year, and at that time there were those who felt that that could have been a dead cat's bounce, as it was too soon to say whether the world's leading economies were moving out of the recession. As the positive news continued to come, optimism did grow.
However, we need to constantly remind ourselves that we are not out of it yet, and the pitfalls that threw us into a recession last year are still there. It was only last Wednesday that the price of oil hit $75 per barrel, the highest level for a number of months, reminding us yet again that, unless we are careful, inflation could be around the corner. The governor of the Central Bank of Italy reminded the Italian government that reforms are still required to ensure that any recovery is not short-lived. In the UK, the British Chamber of Commerce said, in its quarterly report, that Britain is on the brink of ending a recession but the economy remains frail.
Therefore, all the indications so far seem to echo what the Chairman of the US Federal Reserve and the Organisation for Economic Cooperation and Development claimed a couple of months ago, namely that the international economy could expect to start easing out of the recession by the end of this year, but that it is still too early to state that the situation is going back to normal.
One hopes that this sense of realism continues to pervade as in the coming months the governments of the leading economies will need to start finding solutions to their mounting fiscal deficits.
This sense of realism will also need to pervade our own economy. Just because we have been capable so far to mitigate considerably the negative impact of the international recession, it does not mean that our economy may not be hit in the coming months. Assuming that Malta is out of the recession may be like counting the proverbial chickens before they are hatched. It is estimated that government spent around €8 million to support companies to weather the recession.
On top of that, government has also experienced reduced tax revenues as consumption and profits have gone down. In the meantime, government could not curtail its expenditure in order not to reduce aggregate consumption. Thus, it would seem that the public coffers have had to take up a lot of the strain that the international recession placed on our economy. Hence the need for realism and for us to keep reminding ourselves that we are not out of the recession yet.
This realism is evident in consumer sentiment. Most Maltese have felt the need to curtail consumption and not to undertake important expenditures, mainly out of fear that the rainy days are still to come. There is the awareness that the global economic situation is impacting negatively on our economy. There is also a feeling that solutions are not that easy to come by. All in all one senses an understanding of the economic environment in which Malta has to operate that goes beyond political rhetoric.
This coming week the Minister of Finance shall be starting his final round of meetings with the social partners in preparation for the 2010 Budget. It will be very easy to whip up public expectations in order to place pressure on government to spend more and reduce taxes, by claiming that the world economic recession is over. We need to remember that we will have to pay with interest for any wrong decisions taken now. It is therefore in no one's interest to seek to trip government as it seeks to achieve fiscal consolidation, while working on the country's two key economic priorities of generating further investment and jobs. Raising expectations would be doing a disservice to the country because we are not out of the recession yet!