While the government might be sweating it out, trying to keep to its a deficit target of 2.3% of GDP, some welcome news came about yesterday as the recession was declared to be over.
After two quarters of negative growth, Malta registered a GDP growth rate of 3% in Q2 2012. Recession come into effect when a country registers a contraction of its GDP in two consecutive quarters. This does not mean that GDP actually goes into negative figures and it can also mean that an economy registers negative growth.
Negative growth occurs when a country might register 2%, then 1.8% then 1.5 % growth in successive quarters.
The figures released by the National Statistics Office yesterday showed that in the second quarter of this year the Gross Domestic Product (GDP) amounted to €1,658.8 million, an increase of 3% compared to the corresponding quarter of 2011. In real terms, the GDP went up by 0.9%.
In the last quarter of 2011 the economy shrank by 0.3%, followed by another period of negative growth of 1% in between January and March of this year.
Malta has been in recession since June, and the government said that this was because it had decided to absorb an ‘increase’ in utility bills and because exports from ST Microelectronics had dropped during that period.
In an official statement the government said that the main contributors for this economic upturn, were IT, financial services, insurance and recreation. Pays also went up by 2.6%. But, the NSO said that there was a significant slowdown in the construction industry and in real estate activities.
This means that Malta might just have avoid the property bubble burst, which took place in Spain and Ireland, amongst others. Malta has had a long-standing empty property issue, but it is not the same and the causes are much different – cultural, rather than economic.
If the economy has continued to take hits, but at the same time return to growth and exit recession, it means that the construction slowdown might not impact the economy as much as was previously thought. The slowdown is natural. Contractors realised that building pigeonhole flats on every block is simply not sustainable. While this slowdown has begin, the economy once again showed its versatility by registering growth in emerging industries, with wages increasing slightly.
Will it be enough in the long run? This remains to be seen. Although the construction industry is slowing down, it is still a major motor in the economy. On the other hand, we hope that the government takes a positive look at economic theory by keeping the prices of electricity and fuel down, putting that extra little bit of money in people’s pockets. If the government does that, it will increase people’s confidence to spend – but spend wisely. In the bigger picture, this will continue to eliminate those who cannot compete, and encourage those who can to improve their services. Allow us the make the pun, perhaps we are once again moving back into the industrial and consumer oligarchy market.
The key to it all is maintaining confidence and shifting as the winds do. We must be responsive, adaptable and able to look ahead, in seeking to compete in this ever so glum period of economic history. What we must now do, is avoid the dreaded and overly used “double dip” recession, but that is a different story entirely.