Many articles have been published about economic progress this year. There are many predictions but what eventually happens is beyond any powerful crystal ball.
However, it is reasonable to predict that events and trends, which made the headlines last year, can help us foretell the events, on the notion that some continuation occurs. As always, hard work matters. Integrity also matters, so we need to recommit ourselves to the fact that our reputation as an island nation is paramount. Mediocrity has no place in Malta's strategy for the future. Meritocracy and credibility form the cornerstone for a strong economy and a reliable country.
To us islanders, there is nothing we could not aspire to achieve. It was a dream that drove us to join the European Union, which led us to transform our economy. Blessed with generous EU funds since 2004, these helped transform us to enjoy a higher standard of living. As a result of this benevolence, the substantial and indiscriminate state subsidies on energy and food prices since Covid must be noted, as this policy was crucial in helping Malta's core inflation rate begin to moderate. Castille apologists remind us that Malta's economy remains resilient together with a vibrant labour market.
Unemployment remains at record lows and well below European averages. On a negative comment, we anticipate possible supply problems resulting from blockades of key shipping routes in the Red Sea and the Suez Canal and any intensification of Middle East hostilities, including now south Lebanon, that joined the fray. Apart from wars and human atrocities associated with such troubles, one may rejoice that the advent of AI and generative powers, will give Europe a faster transformation to the industrial and professional sectors.
On the upside, AI has the potential to significantly enhance productivity in an economy. This will increase national income, yet, on the other hand, the question that keeps coming up is whether it will disrupt the labour market to such an extent that jobs will be lost and they will not be readily replaced, thereby causing poverty, unless workforces are re-skilled.
As a result, labour redeployment will occur on a large scale, affecting desk-based jobs such as working with Excel spreadsheets, accounting, drafting letters and reports, providing routine legal advice, and handling standard correspondence, all impacted by AI advancements. Yet, it is fair to ask - how secure is ChatBT? The answer is that it is highly secure, using encryption and authentication methods to ensure that conversations are kept private.
This makes it ideal for business applications, such as customer service, where sensitive information may be discussed. Additionally, ChatBT is designed to be compliant with regulations such as GDPR and HIPAA, ensuring that any data shared is kept secure and private. Most office tasks may be soon replaced by the likes of ChatGPT.
This will reduce the required staff size and hence the need to put up tables in back offices and headquarters. Another rising star in the field is Machine learning. This is a type of AI, that can automatically adapt with minimal human interference, while Deep learning is a subset of machine learning, which is based on artificial neural networks that mimic the learning process of the human brain. In professional offices, let us discuss how AI can transform the book-keeping function for stakeholders in general.
While it may be true that some jobs or functions, such as book-keeping and accounting, will be taken over by AI, other job openings will emerge and fill the gap. Naturally for Malta, there is a red sign on the horizon that our education system needs priming up. As a practical solution, retiring lecturers should be retrained and swiftly upskilled to continue sharing their expertise. The Joseph Muscat idea of importing, via temping agencies, thousands of low-paid, low-skilled TCNs has now backfired.
The policy must change, albeit it is not so easy now, as critics say it is too late to change tack and start attracting talent of a higher calibre. Can the digital revolution help us? Starting at high-level tasks, such as advisory, AI would require machine learning involving an expert (or a panel of experts) who would, gradually and over time, train the machine to output the correct conclusions following an analysis of the information related to the case at issue. Not easy to predict what manpower turbulence may occur in the next five years.
Surplus blue-collar workers may be persuaded to work in offices, yet to be realistic - there will be few of them who choose to migrate. New business may be generated once a popular tax incentive is introduced in the 2025 budget. This involves the upgrading of the Real Estate Investment Trusts (REITs) legislation.
It is well-established in Europe but with an enhanced incentive tax legislation, it will soon be launched on the Malta Stock Exchange. Having so many high rental offices and quality residential assets, these can be securitised and enable retail investors to put savings in the development and management of buildings. Another party booster this year is the calming of interest rates.
The European Central Bank reduced interest rates, while on the other side of the pond, the Federal Reserve last month has cut its benchmark interest rate by 0.50 percentage points, marking the first reduction in four years and moving to ease borrowing costs as inflation-weary consumers are grappling with high rates on everything from mortgages to credit cards.
Economists are also forecasting that this rate cut will mark the first in a series of reductions to be repeated in 2025, with many analysts expecting the Fed to also cut its benchmark rate at its next November and December meetings.
In summary, the recent improvement in inflation readings across Europe and globally has contributed to greater stability, raising hopes that major central banks will cut interest rates by the end of the year. An improved inflationary interlude towards Christmas will certainly help readers enjoy the tidings ahead of us.
George M. Mangion is a senior partner at PKF Malta
gmm@pkfmalta.com