Finance Minister Tonio Fenech put on a brave face last week when he predicted healthy economic growth ahead, notwithstanding the woes of which he is aware.
The Minister was speaking at the launch of The Economic Bulletin, which surveys last year’s economic performance, and looks at the year ahead.
In substance, the Minister predicted that economic growth for this year, at three per cent, would be marginally below the 3.8 per cent performance for 2007. Although be conceded that the situation on the international scene was “not rosy”, he claimed that the country is not helpless in the face of these realities.
Was this a case of counting chickens before they hatch? Was the Minister doing his bit to rally Malta’s economic infantrymen at a time when international economic realities radiate despondency?
An answer to these questions at this stage would be as hazardous as the Minister’s prognostications.
The proof of the pudding is in the eating, and at this stage the ingredients are still being assembled ahead of the cooking process!
It will be recalled that when Dr Gonzi launched his 2008 budget last October, he was banking on four per cent growth for this year. Designed for an election year, that unprecedented Lml.1 billion budget had the feel-good factor in mind. It flew in the face of the IMF 2007 Report, which lowered its forecast for Malta’s recovery. The Ministry of Finance claimed that it had taken note of the IMF projections, and that its estimates for 2008 were “conservative”, leaving more than enough room to manoeuvre in case of unforeseen eventualities. It is also worth recalling that Professor Edward Scicluna reflected the view of sober elements, which held that the assumption of continued growth at the 2007 rate was unrealistic. At that time, the price of oil and cereals was rising and the first breezes of price inflation were blowing worldwide.
If anything, things have distinctly deteriorated since then. The price of oil on the world market has escalated, and is widely expected to rise significantly. The price of cereals has touched off an upheaval whose full implications have yet to be assessed.
There is the high probability that economic activity will slow down, as well as the certainly that rising prices will stoke the fires of inflation. This will affect us both ways.
We have to import the bulk of our consumables and our raw materials. Higher supply prices have already been working their way into living costs, with the attendant knock-on effects. They also work their way into the price of our exports, thereby eroding their competitivity.
Other dark clouds have been hovering over the Maltese economic scene since the launching of last year’s budget. The most sinister cloud hangs over the future of ST Electronics. Unless fair winds blow it away, the consequences could be dire.
In the best of circumstances, this company would still have to cope with the heavy burden of currency volatility, which lies at the root of the troubles belabouring the Malta plant.
Equally menacing is the cloud that hangs over the future of the Malta dockyard.
All of this has a bearing on incomes, on consumer spending power, and on government revenue.
It certainly does nothing to enhance last year’s predictions as projected by Dr Gonzi.
The EU and the Malta Central Bank have both forecast a 2.6 per cent growth for this year, significantly undercutting Tonio Fenech’s three per cent estimate.
Against this background, a recent edi
torial in The Times (22 May) highlighted the fact that “many are now wondering to what extent the government would be able to keep to its pre-election promise”.
It went further. It held the view that “progress can easily be interrupted, or go into a hiccup mode, if the efforts to check new difficulties, including rising inflation, are not kept up”.
The iron laws of economics make no allowance for ifs and buts.
The Maltese economy faces stern realities. Its duty is to navigate with these realities in view, and not by the distant stars of its election promises.
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