Mr Fenech was speaking during a conference organised by HSBC entitled Economic and Market Outlook From the World’s Local Bank, which was held at the Hilton yesterday.
International Challenges
Mr Fenech said the world today was facing many economic challenges and Malta, with its open economy, was no exception. “Certain economies may be performing relatively better than others; however, many continue to struggle and undergo restructuring processes,” he said.
He said that in today’s globalised economy countries were experiencing further liberalisation and the effects of dominance of major players. “In world financial markets this has led to a decline in international interest rates and volatility in international equity markets,” he said.
This was particularly relevant to Malta.
“The characteristics of the Maltese economy make it vulnerable to international developments,”said Mr Fenech.
A national strategy
“Everyone recognises the need of our country to become more competitive. Further economic growth can only be attained if we collectively do something more than other competitors are doing,” he said.
Mr Fenech said sustainability can only be achieved if the economy becomes less dependent on the Government’s deficit, which in economic theory should spur economic growth. “This is not happening today. Why? Has our economy become so dependent that it has lost its flexibility? I believe so.” He said this was the reason why Government was strongly advocating the need for fiscal consolidation and structural reforms.
“We needed to make our economy more flexible and less dependent on government intervention if we are to attain sustainable economic growth,” said Mr Fenech.
He said this showed why Government was involved in intense discussions with the social partners at the Malta Council for Economic and Social Development (MCESD) with the aim of reaching an agreement on a social pact.
“Up to the third quarter of this year, Government’s deficit projections were on target. Yet actual figures are still high. To reach our year-end target of a deficit of Lm95 million remains an important challenge,” he said.
The problem was compounded by the increase in oil prices, said Mr Fenech. “Oil is an integral part of our cost of production and the higher prices rise the more impact they will have on our competitiveness. We are closely monitoring the situation and studying various options with the aim of finding a feasible solution.”
Single Currency Area
Mr Fenech said Government firmly believed that there were significant advantages to be derived from membership of the eurozone and therefore it would be a mistake to prolong unduly entry into the common currency.
“Our economy characteristics make us already well suited to join the eurozone and thus make an earlier more then a later adoption of the euro possible. Reduced transactions costs, less exchange risk, price transparency and financial market integration are just a few of the advantages to be gained,” he said.
Mr Fenech said the Maltese economy was well suited to participate in a common currency area. “Its structure mirrors that of the euro area, with close similarities in the sectoral contribution to GDP, in financial sector integration and business cycle synchronisation,” he said.
Other speakers yesterday included HSBC CEO Shaun Wallis, director of strategy David Bloom, HSBC chief economist Dennis Turner, HSBC Fund (Malta) Head Joe Camilleri, economist Edward Scicluna and KPMG Director of Tax Services Andre Zarb.