As certain businesses start to suffer from an economic slowdown due to the novel coronavirus fallout, Jacob Borg speaks to local economists to get their take on the expected impact. 

While much of the coronavirus focus has been on the negative economic and health impacts, veteran economist Lino Briguglio sees the upside in the epidemic, apart from the obvious downsides.

He says a reduction in tourism and entertainment activities could reduce social discomfort for residents living in areas with high tourism densities.

“Traffic is also likely to be reduced, leading to less air pollution. Another upside for a large proportion of the Maltese population is that all this could lead to a reduction in construction activity as well as a reduction in inflows of immigrants.”

More weight should be given to protecting our health than to protecting the country’s income

Briguglio says the onset of the epidemic has also made us realise how important it is to enhance Malta’s food security, principally by protecting our agriculture sector, which he says is currently under attack from various sources, by private construction developers, and, very unfortunately, by the government itself. 

He says the magnitude of the economic effects of the virus depend on how long it will last.

“If the epidemic lasts for just a few months, there would be short-term adjustments post-epidemic, without permanent closures of business and the resultant loss of jobs. If it lasts for over a year, certain businesses will cut their losses and close”.

Briguglio, however, says the great concerns are not economic but health related.

“Overall, the economic effects will be negative but more weight should be given to protecting our health than to protecting the country’s income.

“After all, in the long run, a healthy population is of paramount importance for the country’s economy.”

JP Fabri.

Fellow economist JP Fabri remarks the pandemic is bound to impinge on both the supply and demand side of an economy as well as on confidence and decision-making.

Fabri says an array of factors are impacting both consumer and investor confidence and will lead to postponing of investment decisions too, which will further add to the depressing effects on the economy.

He, too, says that from an economic point of view the most important thing is controlling the spread of the virus as, otherwise, the impact will also grow exponentially.

“It is, therefore, important for governments to be proactive and take all needed measures including lockdowns.

“The short-term loss will minimise the longer-term impacts from a medical, social and economic point of view as the case of Hong Kong strongly shows”.

Fabri says countries like Malta, with a significant financial buffer, are in a position to support businesses and mitigate the impact through targeted and temporary support and stimulus packages, as those already being launched by the government and local banks.

Marie Briguglio

Although much of the attention has been on the wider economic implications of the coronavirus outbreak, economist Marie Briguglio says the virus outbreak puts the spotlight on individual human behaviour. 

“In making the simple decision of whether to go out, we expect that a person will weigh the benefits (making money, having fun, convenience) against the costs (the risk of getting sick) but the cost of accelerating transmission is unlikely to be fully understood, calculated and acted upon,” she notes.

Briguglio says economic theory shows that, left alone, people will invest in less prevention, protection and containment, self-imposed quarantines, washing of hands, and sneezing in elbows than they should and they will undermine one of the most important economic assets we have: public health.

“This is why swift preventive regulation is important. For similar behavioural reasons, it is important that communication by regulators is clear, simple, delivered by a trusted source – and enforced. The same patterns in financial crises and climate change repeat themselves in health epidemics.

“The main actor in any economy is the human and failing to understand how humans make economic decisions puts at risk the economy itself”, she says.

Gordon Cordina says, at this stage, the important thing is for a system of support to sustain the more vulnerable sectors and the other sectors which depend on them, involving measures by the government, banks and other stakeholders including unions.

“The economic shock will in all hope be temporary,” the economist adds.

“It is, therefore, essential to minimise losses in jobs and business setups so as to enable a swift recovery in the medium term”.