There are conflicting signals about the world economy. According to a survey of purchasing managers at manufacturer and service providers, the eurozone economy this month grew at the fastest rate since the end of 2007. In August, industrial new orders in the euro area were up by two per cent when compared to July. On the negative side the UK economy posted a record sixth straight quarter of GDP contraction, thus confounding economists’ expectations that the recession was nearing an end.
South Korean growth is at a seven-year high with GDP climbing 1.9 per cent over the previous quarter. Japan’s Prime Minister Hotoyama, encouraged by figures showing his country’s economy is out of the recession vowed to press ahead with efforts to revitalise Japan’s economy by jumpstarting domestic consumption. On the other end improvements in housing data is not good enough to suggest that housing is in the clear.
This is the picture of a world economy which is coming out of its worst recession but which, at the same time does not show those bold signs that the recession is completely over. There are four main reasons that suggest that the recovery is going to be slow and tough. These include the billions, if not trillions of euros/dollars borrowed by the main industrial countries to sustain a recovery, the strength of the euro which touched the e1.50 against the US Dollar, the unprecedented slide of the US Dollar and Sterling and the price of oil which very strangely went up to $80 a barrel at a time when the world is in recession.
A few weeks before he died, Ralf Dahrendorf, sociologist, philosopher, educator ands politician – and who also had very good connections with our country – in an interview with the Italian Corriere della Sera declared that the world economic recovery is going to be a long and slow process, insisting that the recovery will not be enough to make good for the interests that the leading economies will have to pay for the billions borrowed to stem their economies. He said that all this will entail a period of higher taxation and higher inflation.
The governments of the United States of America, Japan, the United Kingdom, EU governments and Switzerland spent hundreds of billions to save banking institutions, industries and the car industry and to keep the economy going. These billions have to be paid back, and with interests. In this context Ralf Dahrendorf envisages a lowering of the standard of living by about 20 per cent, going back to the levels of the Ronald Reagan and Margaret Thatcher administrations.
The crisis measures taken by the USA and the UK governments are leaving their mark on the US Dollar and Sterling, which are being described as the ‘sick currencies’ of the world. On the other hand the strong euro is not helping the European countries to export more or to attract more tourists from outside the euro area countries. This will definitely prolong the economic and financial recovery in Europe.
The price of oil is not helping either. It is, to say the least, quirk how in a time of crisis the price of crude oil keeps on posting higher an higher prices reaching $80 a barrel. Oil production and supply is higher than demand. Hundreds of tankers, loaded with crude, are anchored all over the world waiting for the price to go up before they sell!
How is all this affecting us? Ours is an open economy. We live on exports, tourism and financial services. If the European economies are in dire straits we will suffer. If we are not suffering as much as the Baltic States, Spain and Ireland it is because we have one of the best banking systems in the world. It is because our government sustained industry through a number of measures that saved hundreds of jobs. And it is because our government sustained our tourism sector through a number of subsidy schemes, through an EU funded e10 million scheme for grants on co-financed projects by the private sector for sustainable tourism; and an MTA fund for additional advertising by hotel operators.
Whilst other European governments are increasing taxes to make up for the billions in additional debt, our government already declared that there will be no additional taxation in the next budget. Whilst workers in other European governments are facing wage decreases, our workers have been promised a pay rise to make up for the cost of living increase.
We should not take anything for granted. Malta’s economy is not in a bad shape as others only because we are in the European Union, in the eurozone and because in the past years we diversified all our economic sectors. If the world economy is still in woods and ours is in a relatively good shape it is because we have a government that looks ahead and takes the right decisions in the interest of all the sectors of the Maltese population.
Joe. M. Zahra
By email