A recent piece of news in Times of Malta (November 16) carried the headline that the EU expects Malta’s economy to grow faster than any other in 2024.

Here, I will briefly explain what GDP means, how its growth is measured and whether GDP growth is necessarily desirable.

GDP is simply the income derived from the value-added, including net taxes, in the production of goods and services in a country. The word gross signifies that depreciation is not deducted from the total. Such income includes wages, profits, rent and interest.

It is important to note that imported goods and services are not included in the measurement of GDP. What GDP includes is domestic value-added. In the case of Malta, about 60 per cent of the value of goods and services sold is imported and the rest is value-added domestically. The GDP figure does not say anything about how the income thus generated is distributed and whether the increase in domestic production generates undesirable effects, such as environmental degradation or social discomfort.

Over the years, GDP may increase as a result of an increase in prices. In this case, we say that GDP would have grown at current prices (in nominal terms). If the effect of increasing prices is eliminated, then we say that GDP would have grown at constant prices (in real terms).

GDP growth is normally reported in real terms. For example, Malta’s GDP growth between 2021 and 2022, according to NSO statistics, was 12.5 per cent in nominal terms and 6.9 per cent in real terms.

Interestingly, a part of GDP is generated from what is known as defensive expenditure. Locks are produced and sold because there are thieves and burglars about. Doctors make a living because there is ill-health, while a puncture repairer would lose money if there were no potholes.

Another thing to note with regard to GDP is that it does not include unpaid production, such as unpaid housework.

One should note that value is created in a country when people buy goods and services as anything that we buy generates wages and profits and, possibly, other sources of income. So consumption of goods and services (by local residents) and exports of goods and services (purchases by foreign residents) result in an increase in GDP.

This is also the case with purchase of machinery for production and government current and capital expenditure.

The occupation of Malta’s best beaches for private business is a major disservice- Lino Briguglio

As to the question as to whether or not GDP growth is desirable, it is a fact that not all increases in GDP generate an improvement in the quality of life of the residents. For example, the recent pruning of trees in Mosta was an economic activity that increased GDP but was considered as undesirable.

The allocation of large parts of the coastal area and the occupation of large tracts of Malta’s best beaches for private business are, to many of us, major disservices.

The same can be said about the unbridled construction activity, which generates income to some but causes considerable social discomfort to many of us. I say many of us because some would benefit financially from such activities.

Some theorists argue that GDP growth is likely to be very beneficial to an underdeveloped, relatively poor countrybut not necessary so when the country is developed and relatively rich.

So is GDP growth desirable or undesirable for Malta? The answer is, it depends. If, on balance, it improves the quality of life of the country, it would be desirable. If, on the contrary, on balance it worsens our quality of life because it generates polluting activities, land degradation, social discomfort and other disagreeable effects, GDP growth would not be desirable.

Many of us are of the opinion that certain economic activities that are generating growth in Malta are, on balance, undesirable.

Lino Briguglio is a professor of economics at the University of Malta.