In this new world of alternative facts and scant regard for the meaning of words, I find that I often have to refer to the William-Webster dictionary to find out whether my understanding of centuries-old words has changed without my realising it. It is even more important because what I read is often said by people or organisations who matter in the country.

Last week, I had to look up the dictionary when I read that the president of the Chamber of Commerce William Spiteri Bailey was angry because the government had said that it is "business as usual" in the country, whereas the Minister of Finance had warned about pressure on the public finances.  Spiteri Bailey apparently had a problem remembering who in the government had said so, even though everybody was aware that it was the Prime Minister who did, though he did remember that the reference to public finances was made by Minister Clyde Caruana.  Rather funny.

But back to the point of this opinion.  My dictionary confirmed that business as usual" means "the normal execution of standard daily operations within an organisation, even when unusual, difficult, or unexpected events happen."  The wonder that is AI further told me that it implies "continuing work in the usual way without letting a crisis or change stop daily tasks."

Hadn't I known that already, I would have failed big at Air Malta where change was the order of the day, and crises did happen frequently.  AI further told me that use of the phrase started in the late 1800s to show stores were still open despite bad weather or construction. Winston Churchill later made it a popular national slogan during World War I.  Now, that I didn't know.  So, one for AI.

Of course, the Opposition immediately joined the fray.   The PN accused the Prime Minister of misleading the public, calling on him to "stop lying to the people" about the state of Malta's economy and public finances.  It accused Abela of "trying to paint a picture that everything is rosy in our country," while Finance Minister Clyde Caruana presents what it described as a completely different reality.

I am fascinated that we often speak as if not only have words apparently lost their meaning, but as if the real world is monochromatic when in fact it is not black and white, apart from it being messy.  What I mean is that it is common knowledge that different things can exist concurrently in everyday life, as in science.

Two situations can exist at the exact same time, and anybody observing them could feel both happy and nervous also at the same time.  I am tempted to say that such situations could be covered by Albert Einstein's physics of the relativity of simultaneity about separate events happening concurrently.  Seven years ago, science itself confirmed that two versions of reality can exist at the same time. By demonstrating this in practice, scientists at Heriot-Watt University called into dispute fundamental questions about quantum physics and suggested there is no such thing as objective reality.

Coming to the economics, there is no doubt in my mind that this area of the social sciences is as complicated as quantum physics.  Indeed, one might say that quantum physics is about order, whereas economics is about disorder. Therefore, it is entirely possible that the Maltese economy can continue operating according to the 'business as usual' dictum, whereas the public finances may need a serious rethink.

Actually, not just possible. It is a necessity. There is no reason why the economy cannot keep growing at a healthy rate next year. In fact, the European Commission expects real growth to be 3.6% in 2027, even though it must have factored in the lingering effects of the Strait of Hormuz stalemate and other uncertainties.  Both the International Monetary Fund and the Central Bank of Malta share this forecast.

The background to this is a forecast global growth rate of 2.7% in 2027 according to the World Bank.  Mind you, that forecast had assumed that energy supplies would recover and trade would strengthen.  The World Bank had assessed that risks remained skewed to the downside because of escalating hostilities, commodity disruptions, and policy uncertainty.  On the other hand, Ai adoption could boost activity.

Of course, nothing is guaranteed.  As I said, the world economy is not like the constellations which follow highly predictable, determined paths across the sky. Mind you, even this celestial order is an optical illusion, being caused entirely by the motion of the Earth which changes our view of space by about one degree every day from season to season.

What I mean is that bar a huge meteor knocking a star out of its orbit, we know where Saturn or Neptune will be tomorrow morning and we would actually have advance warning of such event through our telescopes.  But in the real world of economics, Trump could blow up the entire nation of Iran at a whim while we are sleeping, and the world economy could spin out of control.

Bar that, the fundamentals of the Maltese economy are well known   ̶   domestic demand remains robust, the export sector is strong, strong services trade will outweigh the negative goods trade balance, investment is expected to recover, and the labour market remains strong.

Of course, there is no growth forecast that doesn't mention uncertainties or risks.  That would be foolish.  Any economic planning worth the paper it is written on would factor in such uncertainties and risks. Most heads of households would base their forward expectations on cautious assumptions about their income and expenses, let alone the Minister of Finance.  There are no indications that the level- headed keeper of the finances has lost his head.  In fact, Mr Spiteri Bailey himself, rather clumsily in my opinion, tried to use him as a foil against the PM.

Having said that, it is also clear that the economy's path in the medium- to long-term has to change.  This is where the Chamber is right.  The current economic model has an expiry date and the nearer we approach that date without tangible progress towards a new sustainable model, the greater the risk that something will go wrong.  If and when it does, we could be in for a long and painful readjustment.

The issue has been on the table since at least 2021.  Vision 2050 was launched early this year.  Like all plans, this had a 10-year timeline.  Tell the truth, in my early days of strategic planning, such timelines were standard.  Anybody who still believes in this nonsense is out of his mind.  Cut that timeline by half and you're still being optimistic.

The world has changed.  Global economic and political uncertainty is running at historically elevated, multi-decade highs due to simultaneous systemic pressures.  There are quite a few indices measuring uncertainty, the foremost one being that of the IMF.  Its latest index has one signal flashing red, another green, and a third one amber.  The organisation sees uncertainty as having risen above its long-term levels, though still short of the peaks of the global financial crisis or the pandemic.   

Any policy maker who talks confidently about what will happen in 2030 and beyond is either stupid or irresponsible.  So, make your 10-year plan if you wish, but please tell us exactly what immediate policy changes you have in mind for the next five years and start showing us tangible results by Year 3.

The option value of waiting will be much higher when uncertainty is greater.   A body of research findings shows that greater uncertainty has a strong impact on reducing investment and a weaker effect on lowering employment and consumption   ̶   while overall helping to drive business cycles. These effects seem to be magnified when financial conditions are tight: Uncertainty and financial frictions can have a multiplicative impact on each other.

Coming to the question of the public finances, in my view it's complicated but simple. When one runs a fiscal deficit for nine years running in a full employment economy, the fiscal engine will eventually seize. I have repeatedly stated that the fiscal stimulus is lasting too long.  Minister Caruana has a challenge, all the more with this fixation over energy subsidies for everybody. He should not squeeze public investment, being the only expenditure that assures long term sustainable growth. Smart watches and free food for the cats are, well, just waste.

The majority of economists would tell you that fiscal deficits in a full employment economy are generally bad because they trigger inflation and crowd out private investment.  When the economy is operating at full capacity, the government injecting extra demand through borrowing creates significant imbalances.

For some time, I had supported this policy, but now it's gone on too long.  I don't much care that the public debt as a proportion of GDP is lower than that of the rest of the Union.  That's a headline metric, but hardly a good policy prescription guideline.  The truth is that running structural deficits during good economic times expands national debt without long-term capacity gains.

Were this deficit spending funding high-return infrastructure that boosts long-term productivity, it might be partially justified.  But it is doing nothing of the sort.  Most of the funding is going towards recurrent expenditure.  Government ministers are fully captured by their own propaganda that expenditure on better wages and all sorts of benefits is "investment."  The Financial Estimates tabled every year in parliament call them out, when such expenditure is not classified under the investment heading. My economics dictionary tells me that "investment is the commitment of money or resources into an asset, business, or project with the expectation of generating a future profit or income." And I trust the dictionary.

So, to conclude, I believe that the "business as usual" and Minister Caruana's financial warning are both right, but they fail to mention a big imperative: change the course of the economy and the public finances or we could get seriously burned.

Frans Camilleri is an economist