Performance after the crisis and challenges for the future 

The Central Bank of Malta hosted a symposium entitled "Small euro area countries - performance after the crisis and challenges for the future" on 17 June.

The publication 'Understanding the Maltese Economy' was launched during the symposium. This research publication, which focuses on the evolution of the Maltese economy in the first decade following EU accession, brings together ten articles authored by nine economists of the Central Bank of Malta. It is divided into five parts and includes an overall description of the particular characteristics of the Maltese economy.

The first part gives a general overview of the Maltese economy and highlights the trends and structural changes that have contributed to increase economic flexibility and resilience over time.

The second part looks at the relationship between output, prices and employment in Malta. Articles in this section provide estimates of potential output in Malta and examine the relationship between output and unemployment, and that between economic activity and inflation.

Inflation dynamics in Malta are analysed in greater detail in the third part, with articles focusing on the underlying patterns and determinants of inflation in Malta and estimates of core inflation.

The role of the financial system is analysed in the fourth section, with two articles looking at the demand for currency and the transmission mechanism in Malta. Estimates of the fiscal multipliers for the Maltese economy are included in the final section of the publication.

The Deputy Governor, Alfred Mifsud, introduced the proceedings. Dr Aaron G. Grech, Chief Officer Economics and Statistics Division, and Dr Ian Cassar, University of Malta, presented and discussed the research publication.

The second part of the symposium, which was introduced by Alexander Demarco, Deputy Governor, dealt with the performance of small euro area countries after the crisis.

Gaston Reinesch, Governor of the Banque Centrale du Luxembourg, Dr Boštjan Jazbec, Governor of the Banka Slovenije and Professor Josef Bonnici, Governor of the Central Bank of Malta highlighted a number of salient factors that determined the performance of their country during and after the crisis, going beyond the issue of size and how these differed from the rest of the euro area.

Governor Bonnici showed that despite its small size and dependence on foreign trade, Malta coped well with the crisis and outperformed most of its peers in the aftermath.

The Governor explained that structural change was the major determinant of Malta's economic resilience. That included liberalisation, privatisation, and investment in infrastructure and education over the past fifteen years.

This was accompanied by a targeted strategy to attract foreign direct investment that opened up new service sectors and upgraded the manufacturing sector, accommodating the rise in female participation and inward migration.

Governor Bonnici emphasised that flexibility in product and labour markets, economic diversification, sound banking practices, together with prudent and growth-friendly fiscal behaviour, are also necessary ingredients for a resilient economy to face both external and home-grown shocks for small and large countries alike.

The publication "Understanding the Maltese Economy" is available on the Central Bank of Malta's website at www.centralbankmalta.org.