The seven years during which Dr Joseph Muscat was Prime Minister marked a complete economic turnaround from the previous seven years. From a situation where the Maltese economy was subjected by the European Commission to an in-depth review under the Macroeconomic Imbalances Procedure, it is now lauded as the fastest growing economy in Europe. From a situation where Malta’s credit rating had been downgraded by all rating agencies, in recent years there have been consistent upgrades.
To understand the economic transformation that Malta has undergone, one can look at 10 indicators. These indicators are calculated as seven-year averages so as to show that the difference in performance was not in one particular year, but rather throughout the period.
The first indicator is growth in the nation’s gross domestic product (GDP). In 2020, GDP is forecast to be double the level it was in 2012. In fact, on average during the past seven years GDP growth was nearly seven per cent, or three times the EU average during the same period and the average growth seen in Malta before 2013.
The fact that the Maltese economy has been out-performing the EU average so strongly means that, for the first time, its GDP per capita is now nearly equivalent to the EU average. Economists had been expecting the gap between the GDP per capita of Malta and the EU GDP to persist for a generation but instead it has disappeared in just seven years.
Economic growth was job-rich. In every year since 2013, Malta has had the highest percentage growth in employment observed among EU countries. From an employment rate that was five percentage points less than the EU average, Malta now has a positive advantage of nearly the same margin. Every year employment has risen by an average of 10,600 – or three-and-a-half times the growth seen before 2013.
Business sentiment during the past seven years has been very strong. According to the EU Commission’s regular sentiment survey, the degree of economic confidence expressed by Maltese businesses and consumers was 11 per cent higher than in previous years. During most of the last seven years, Malta had the highest level of optimism monitored across euro area economies.
High business optimism was reflected in extraordinary levels of investment that amounted to nearly €1.8 billion, an improvement of nearly 40 per cent. Since 2013, the stock of foreign direct investment has doubled, increasing by €2.7 billion.
This investment was possible as the profitability of firms improved considerably, with operating surpluses nearly doubling to reach an average of nearly €5 billion. The economic climate was such that, whereas before 2013 on average the number of firms used to rise by 4,500 every year, in the past seven years the average annual increase has been nearly 7,000.
The beneficial conditions for firms translated into better conditions for workers. A tighter labour market, where employers were chasing employees, meant that for the first time ever the average wage exceeded €20,000 in 2019. This marked a €4,000 increase compared to 2012. On average, wages rose by €11 a week during these seven years, compared to €9.50 in the previous seven years.
Moreover, the faster increase in wages happened at a time when inflation fell. Whereas before 2013 inflation averaged 2.5 per cent, in the past seven years it was 1.7 per cent, thus, the purchasing power of the average worker rose by 22 per cent, compared with just 10 per cent in the seven years up to 2013.
The improved situation of families and businesses meant that, for the first time in a generation, our nation managed to have a surplus on its balance of international payments. Whereas before 2013, Malta had a current account deficit of three per cent of GDP, one of the worst in the EU, in recent years it has had on average a surplus of more than 7 per cent – one of the best in the EU.
At the same time, the burden of private debt has fallen dramatically.
From a situation where Maltese companies had debts equivalent to nearly a year’s worth of GDP, this has now fallen to just over three-quarters. Despite investing much more than in the past, our firms are now borrowing much less than before.
The developments in these ten indicators confirm that, in recent years, Malta has experienced an economic miracle. It has become an economy with full employment, a record level of investment and the fastest rate of economic growth in the EU.
Byron Camilleri is the Government Whip