Even though the effects of the recession in Malta have been relatively mild compared to other European countries, it may take the country longer to fully recover, economist Gordon Cordina told a business breakfast organised this week by our sister paper The Malta Business Weekly and the Malta Chamber of Commerce, Enterprise and Industry.
Speaking on Thursday, both Dr Cordina and PricewaterhouseCoopers Malta management consultant Lino Casapinta gave detailed presentations regarding the implications of the recession on the Maltese economy, and whether or not a revival can be expected any time soon.
“There are two reasons why the Maltese economy has been resilient at this time of recession: because the country did not experience a credit crunch and because Maltese banks became self-contained. However, when financial stability returns in other countries, these factors will no longer serve Malta strongly as a source of competitive advantage,” said Dr Cordina.
Wages in the first nine months of 2009 rose by 3.7 per cent, compared to the same period in 2007, while business profits rose by 1.1 per cent per annum. Price inflation during the same period averaged 3.6 per cent per annum. While wages remained relatively stable over the same period, business profits definitely declined as a result of the recession.
The stability of Maltese banks, their excellent financial systems and the fact that the country did not experience a strong credit crunch were key factors in helping Malta weather the storm.
According to Dr Cordina, one disadvantage of all this is that investment could suffer a long-term decline. He went on to suggest that in the first few months of 2010, the Maltese economy may suffer from weakening consumer and business confidence – a situation that can, to a larger extent, be addressed through a quick and effective implementation of the measures announced in Budget 2010.
“Subject to these sources of uncertainty, one may well expect a moderate recovery in economic growth in 2010. It is probable, however, that the economy would not reach its long run potential growth rate, which should fluctuate at around three to four per cent in real terms, in the current year. The important thing is to strengthen business competitiveness and enhance productivity,” he said.
“The way in which we look at economies will definitely change, once countries fully emerge out of the recession. Albeit lasting two years, this recession contrasts with that of the 1930s, when the majority of countries succumbed to six full years of recession. Just as lessons were learnt back then, the latest recession should also give a warning to all concerned in the business world never to take anything for granted,” Dr Cordina pointed out.
Whereas investment as a proportion of GDP remained steady at around 20 per cent in the eurozone countries between 2007 and 2009, in Malta the proportion was 15 per cent, a fall of five per cent.
Per capita GDP in Malta stands at 76 per cent of the EU average and, according to Dr Cordina, it looks more than likely that this figure will remain the same for the time being.
“This emphasises the need for more jobs, while also keeping in mind the need to enhance the productivity of new and existing jobs,” he said.
Dr Cordina added that one area in which the country needs to invest more is research and innovation, with Malta remaining a “catching-up country” in terms of innovation performances, while the challenge is there for businesses to invest in key changes that will change the landscape of the economic outlook in the near future – climate change being one of them.
On behalf of PricewaterhouseCoopers, Lino Casapinta echoed Dr Cordina’s opinion that it remains uncertain when the Maltese economy will fully recover from the recession and the implications it has had on businesses.
“The question businesses need to ask themselves, and which rests on a knife-edge, is whether now is the right time to invest, consolidate or expand. Global companies are relating the macro-economic conditions to the micro-economics of their market, inducing cost-cutting, rationalisation, consolidation and investment,” said Mr Casapinta.
“As a result, it is imperative for businesses not only to survive the downturn of the economy, but also to survive the upturn. National competitiveness is now showing a striking resemblance to business competitiveness, with the enhancing of productivity becoming one of the most important factors in both areas,” he said.
Briefly addressing those present, Chamber president Helga Ellul emphasised the need for business competitiveness in Malta and made the point that small and medium-sized enterprises (SMEs) remain the backbone of the Maltese economy.