The Malta Independent 22 October 2020, Thursday

Economic activity ‘stronger’ than was envisaged in May, 66% want schools to reopen - report

Kevin Schembri Orland Tuesday, 13 October 2020, 16:31 Last update: about 8 days ago

A report summarising the main findings of a telephone-based, scientific survey conducted by Vincent Marmara and Sagalytics during September 2020, shows that during the summer period, economic activity in Malta has been 'considerably stronger' than what was envisaged by households back in May.

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The survey, conducted with 600 respondents who were randomly selected out of Malta's population aged 16 and over, was supplemented by an economic analysis carried out by The Office of Dr Joseph Muscat..

The findings show that during the summer period, economic activity in Malta has been 'considerably stronger' than what was envisaged by households back in May, "with our estimate of the drop in Gross Domestic Product (GDP) revised to -8%, from our larger original estimate of -11.3%."

The report read that the upward revisions were mainly registered in accommodation and food service activities as well as in the retail sector.

It added that the better-than-expected consumption outcomes "might indicate that households have reassessed the risks associated with the pandemic and are starting to come to terms with the new normality characterised by an ongoing COVID-19 transmission within the community. Furthermore, the increase in consumption typically took place in sectors where government intervened directly through consumption vouchers. Despite these upward revisions, consumption of all services considered in the survey are still significantly lower than pre-pandemic baseline levels."

The report read that, going forward, some sectors are expected to continue experiencing a slight rebound in consumption during the autumn and winter period when compared to summer. The largest increases, it read, are expected to be registered in the retail sector, coffee shops and restaurants. On the other hand, respondents indicated that they intend to cut back on their use accommodation services in the form of hotel and farmhouse breaks.

It found that, even after a Covid-19 vaccine is made available to the general public, household consumption is expected to remain lower than that prior to the pandemic.

The findings, the report read, highlight the importance of devising correct economic incentives which on the one hand help increase household spending while at the same time bolster consumer confidence. "In line with the conclusions drawn up in our earlier report, respondents have indicated that the government assistance in the form of wage subsidies and consumption vouchers have been quite successful in boosting demand. The survey also indicates that respondents would tend to utilise future incentives in the form of consumption vouchers more in the coming months."

The survey also found that respondents were very reluctant to send their children to childcare centres over the summer period. "The prospects however improve significantly over the autumn and winter months with around 43% of respondents intending to make use of childcare centres. On the basis of these results, the risks of negative supply shocks to the labour supply in Malta seem, at the time, to be relatively low."

In addition, the survey found that the majority of respondents (66.4%) have indicated that they are in favour of schools reopening this October even if infection cases persist across Malta. "When a child or member of the staff is found positive to COVID-19, the majority of respondents (57%) believe that the most suitable action to be taken is to close the class where the positive case is found and test the students and relative staff."

The report has three main economic policy implications, besides suggesting the importance of keeping childcare and schools open and of continuing to enforce health measures to make consumers feel safe, the document read.

"The first is that government consumption vouchers need to remain an important part of the policy tool set, at least until a vaccine is found, and that they need to remain very targeted rather than spread towards sectors that are already doing better than others. The second is that the COVID-19 wage supplement is sustaining the income of lower income households with a higher marginal propensity to consume, and in this sense, it has a strong multiplier effect which needs to be maintained in the current climate. The third is that for growth to return to pre-pandemic levels, the predicted long-term drop in consumption needs to be offset by a rise in another component of aggregate demand, with the most obvious candidate being investment financed by the large pool of savings that have been accumulated."

Read the report here

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