The Malta Independent 8 April 2020, Wednesday

Home alone – energised with adrenaline, coffee and memories

George M Mangion Tuesday, 24 March 2020, 09:49 Last update: about 14 days ago

Like thousands of other workers, I am obeying strict medical orders to stay and work from home to avoid mingling with others so as to help contain the spread of the Covid-19 virus.

In just two months, the world economy has been turned upside down. Even the mildest brush with the coronavirus could prove economically destructive if our government acts risk-averse when deciding how much stimulus to provide in its early days.

A dangerous pandemic working its way across a highly integrated global economy is an unprecedented event that resulted in the abrupt closure of our shops, hotels, restaurants, retail outlets, casinos, schools, university, bars, places of worship and cancel all sports activities.

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The health authorities ordered that all inbound passenger flights are temporarily suspended. The past three weeks have completely transformed the island from a paradise that was busy with three million tourists and one million cruise liner visitors, to an island with bare streets where one walks alone preferably serenading to sweet memories of the past.

This latest order means that the tourist industry comes to a complete standstill except for the few visitors that are either on long stays or perhaps locals. Naturally, the vast duty-free shops at the airport terminal will also suffer a total cessation of business. Quoting Malta Hotels and Restaurants Association president Tony Zahra, he was candid about the situation when addressing questions from the media.

"The industry has never seen a situation where there is literally zero income, not even in the worst of worst of times. We truly are witnessing a disaster of immense proportions and the industry will need all the help it can get from the government to overcome this situation," mirroring the problems faced by hotels are two thousand catering establishments that also were ordered to shut down.

The Association of Catering Establishments (Ace) said most of its members would not survive beyond three weeks based on predictions arising from a sectorial study.

An Ace study clearly demonstrates that if assistance is not given by government for three days out of five, many restaurants and bars will go bankrupt by mid-April. It has proposed that all salaries of employees, in the catering industry, are scaled down to minimum wage in line with the basis of the measures taken in the mini-budget announced by government. This plans to help liquidity based on a minimum wage configuration.

As can be expected, it has been the cause of protests from all constituted bodies saying the offer of a minimum wage subsidy was too low since the average wage is two-and-a-half times higher than minimum wage. One hopes that the mini-budget is soon revised to calm the fears of employers who foretell widespread unemployment after Easter holidays.

The prime minister was ebullient in saying that the €175m direct assistance package will be fine-tuned in the near future as the consequences of the pandemic become more quantifiable.

Be that as it may, the austerity measures announced this week fly in the face of a government perennial slogan that we are living in the best of times L-aqwa zmien.

Gone are the days when Malta Enterprise could brush off criticism about its bold decision to engage a minister's wife with a five-figure salary to help promote the growth of business with Asian investors.

Now Malta Enterprise will next week eat humble pie in a mad rush to vet hundreds of requests from companies claiming refunds of salaries based on a mere €800 monthly rate. But there have been positive remarks by Party apologists that the Robert Abela administration has acted quickly to draw up a mini budget and is providing a €900m guarantee for up to 20% of new bank loans by distressed firms.

Another sum has been allocated to finance a two-month tax payment moratorium for all companies affected by the closure or part disruption of business.

It is easy to criticise the authorities that its treasury advisers were frugal and acted with a partisan streak in order to appear populist to play to the ears of low-income workers. These are most likely the first to face the sack. But really and truly who can tell with accuracy for how long will the pandemic curve escalate before an effective vaccine can be discovered by scientists, who are working round the clock to test the effectiveness of medical cures.

At worst, it will be some time before the full extent of the economic blow from Covid-19 can be estimated with any confidence. As more of the eurozone (mostly Italy with the highest mortality cases) enters into a prolonged shutdown, it seems increasingly clear that Europe is facing a drop in output unprecedented in its breadth and intensity.

To prevent a eurozone crisis, the European Central Bank plans to buy €750bn of bonds to ratchet up the euro. It is hoped that Brussels should also give a clear guarantee of sovereign support for Italy and other peripheral economies which are in economic distress. Many ask - is damage going to be more severe than the global financial crisis of 2007-09?

By comparison, one notes how in 2009, president Obama succeeded to persuade the House of Representatives to carve out a massive TARF sum of a $830bn stimulus, which successfully bailed out a number of banks and financial institutions in a bid to restore order in the global markets.

With hindsight, one notes how in the Western world, clusters of other notable large decreases in economic growth occurred at the heels of the 1973 oil crisis, during the Asian financial crisis of 1997-98 and as part of the global 2007/8 financial crisis and its aftermath. Sadly, one recalls how the main causes of economic contraction, world wars in the past persisted and disrupted economic activity for several years.

The fears abound that the corona pandemic may at its worst scenario, shave off ten percentage points of the world GDP. How does this compare when one delves into previous calamities? Among the advanced economies, which experienced annual drops in GDP of more than 5% since 1960, history tells us that recovery took an average of four years for it to return to its previous level.

Recoveries from the 2007/8 global financial crisis, in contrast, have been more sluggish. For instance, the beleaguered Italian economy grew quickly (by about 35%) in the year the war ended so that by 1949 it had already recovered all the ground it lost during the war. It is unfortunate to comment that our neighbours, entered the Covid-19 crisis having failed to regain the level of real output it achieved in 2007/8.

In conclusion, Malta's health authorities were very professional in their ways to guide us how best to resist infection in this unprecedented crisis but workers, (like me) now trapped at home, cannot wait for the day when the nightmare is over and the dark cloud glides peacefully away.


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George Mangion is a senior partner of an audit and consultancy firm, and has over 25 years' experience in accounting, taxation, financial and consultancy services

 

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