Malta still has the highest growth rate in the eurozone, but forecasts have been lowered to 1% from 1.3%, back in November.

To put this into context, the eurozone’s forecast rate was cut from 0.3% growth to a contraction of 0.3% of Gross Domestic Product. The European Union as a whole, meanwhile, looks to remain stagnant at 0%.

The forecasts were made by the European Commission and Malta’s downward revision “primarily reflects the impact of the projected further slowdown in the euro area”. Put very simple, the Commision predicts that our economic activity will slow a little, due to the issues which are affecting the eurozone as a whole.

But the Commission also warned that Malta should keep an eye on its “very large banking system” in the event of domestic credit exposure (people not being able to pay their loans) and any downturn in tourism.

Coupled with recent figures showing that private consumption is weak, then the Commission could be correct in expressing such concerns. The fact of the matter is that Malta’s internal markets are performing relatively well and investment is still coming in. But, if tourism expenditure falls, or the number of tourists drops drastically, then we could see a massive knock-on effect which would lead to the scenario that the Commission warned about.

If tourism figures do fall, then people who work in the industry (one of the largest in the country) will be laid off. If that happens, then yes, the local banks could become exposed due to issues of local credit and loans.

Without trying to over simplify the numerous factors that influence economic performance, the tourism issue seems to remain key. The present government has always maintained that tourism will always be one of the main pillars of the economy, and has done much to offer various incentives to improve performance.

The government has also done all it can to attract new arrivals by increasing accessibility to Malta. But there is, of course, the Air Malta problem. In all likelihood, the national airline will reduce the amount of routes it operates and this could have a possible impact on the number of visitors to the islands. And this is the challenge ahead; maintaining and building positively on the increasing number of arrivals every year.

Of course, one should never put all the eggs in one basket, and there are other high value sectors in the economy which need to be nurtured. There is, of course, the pharmaceutical industry, the financial services sector, the electronics manufacturing sector and many others.

This year, 2012, was always touted to be a bigger challenge than 2011. It almost seems as if Malta sailed through 2011 without an economic worry in the world. We were one of the top performers in Europe and other European leaders hailed our performance as being a “minor miracle”. This year, though, is already proving to be a different kettle of fish. The government knows that things are getting tighter and that there is not much more that can be re-directed to the government coffers, which is why it has already indicated that energy prices will remain stable this year. We are, perhaps, in terms of spending power, on a knife-edge now. We can still afford to spend enough to make the wheels go round, but any more burdens and we might just throw the banks into chaos.