The Malta
Thank God for small
mercies! Our economy has grown again in the third quarter, the Prime Minister
proudly proclaimed to PN councillors last weekend.
If we have come to a stage where we are satisfied and take pride in registering consistent small growth, when all around us are growing much faster, then our biggest problem is not the budget deficit, the lack of investment, the comparatively higher inflation, the expensive energy or lack of competitiveness. Our biggest problem is in not acknowledging that we have a problem and are happy to pretend that we are doing well.
I tried to trace GDP/GNP figures related to the third quarter to make an objective assessment on the size of the proclaimed growth and its nature – because being happy with a plus sign is not enough. The figures behind the plus sign are as important as the need for growth to be balanced and spread across all-important sectors of the economy.
Unfortunately, no such GDP third quarter figures have been published by the National Statistics Office. It seems that we cannot reach sufficient maturity where important economic data is placed in the public domain before politicians start drawing whatever conclusions suit their narrow interest in the partisan media before anyone can challenge their assertions.
I have to do with bits and pieces of indicative economic data that frankly give little scope for jubilation.
Manufacturing is clearly contracting. According to the Manufacturing Survey for the third quarter of 2005 (NSO News Release 223/2005 dated 20 October), sales by manufacturing enterprises fell by Lm21 million (eight per cent) compared to the third quarter of 2004, and year to date sales are down Lm65.9 million (nine per cent) compared to the first nine months of 2004.
Manufacturing employment reduced by 155 during the third quarter of 2005 and by 332 since September 2004. Investment in manufacturing was down by Lm 8 million (19 per cent) in the first nine months of 2005 compared to the same period last year.
The unmistakeable conclusion is that manufacturing has not participated in any growth. On the contrary, it has contracted.
The inflation report for September 2005 shows a rate of 2.76 per cent, up from 2.74 per cent in August 2005 and 2.57 per cent in September 2004. For an economy that is growing well below its potential, this level of inflation – higher than that of our main trading partners – is disquieting.
NSO News Release 225/2005 shows that cruise passengers declined by 11.7 per cent in September 2005 compared to the same month last year, but for the nine months passengers are up 10 per cent on 2004, though still way below 2001, 2002 and 2003.
Finally, I found the report on Government Finance Data for August 2005 (NSO News Release 210/2005 of 30 September). The structural deficit is down Lm21 million on the same position last year and this is totally due to an increase in grants of Lm22 million and an increase in VAT and other consumption taxes of Lm20 million. Collectively these two sources produced an improvement of Lm42 million, half of which went to finance increased expenditure and half resulted in the improvement in the structural deficit.
There was a time when grants, given their temporary nature, were considered as a financing item rather than ordinary revenue, as one can hardly build the durability of public finances on temporary grants. More promising is the increase in consumption tax revenue of Lm20 million. Such growth is normally indicative of economic buoyancy.
But there is irrefutable evidence that the economy is anything but buoyant. The fact that other tax sources, like income tax and social security, have stagnated is not indicative of buoyancy. Furthermore, GDP figures for the first two quarters would in no way support increased consumption as the reason for a 24 per cent increase in government’s receipts from consumption taxes.
Given that special amnesties were in place for a waiver of penalties for overdue payments, the increase in VAT takings is more indicative of one-off efficiency in collection rather than recurrent increased consumption as the Prime Minster tried to indicate in his weekend speech.
As the Prime Minister puts the final touches to the government budget for 2006 to be presented to the House on Monday, he should bear in mind that, above all else, priority has to be given to strong growth in our productive sectors, particularly those that are geared to export demand. We cannot continue building our little statistical macroeconomic growth on real estate/construction and on the duopoly of the financial sector that are driving our dangerous asset price inflation.
If we have come to a stage where we are satisfied and take pride in registering consistent small growth, when all around us are growing much faster, then our biggest problem is not the budget deficit, the lack of investment, the comparatively higher inflation, the expensive energy or lack of competitiveness. Our biggest problem is in not acknowledging that we have a problem and are happy to pretend that we are doing well.
I tried to trace GDP/GNP figures related to the third quarter to make an objective assessment on the size of the proclaimed growth and its nature – because being happy with a plus sign is not enough. The figures behind the plus sign are as important as the need for growth to be balanced and spread across all-important sectors of the economy.
Unfortunately, no such GDP third quarter figures have been published by the National Statistics Office. It seems that we cannot reach sufficient maturity where important economic data is placed in the public domain before politicians start drawing whatever conclusions suit their narrow interest in the partisan media before anyone can challenge their assertions.
I have to do with bits and pieces of indicative economic data that frankly give little scope for jubilation.
Manufacturing is clearly contracting. According to the Manufacturing Survey for the third quarter of 2005 (NSO News Release 223/2005 dated 20 October), sales by manufacturing enterprises fell by Lm21 million (eight per cent) compared to the third quarter of 2004, and year to date sales are down Lm65.9 million (nine per cent) compared to the first nine months of 2004.
Manufacturing employment reduced by 155 during the third quarter of 2005 and by 332 since September 2004. Investment in manufacturing was down by Lm 8 million (19 per cent) in the first nine months of 2005 compared to the same period last year.
The unmistakeable conclusion is that manufacturing has not participated in any growth. On the contrary, it has contracted.
The inflation report for September 2005 shows a rate of 2.76 per cent, up from 2.74 per cent in August 2005 and 2.57 per cent in September 2004. For an economy that is growing well below its potential, this level of inflation – higher than that of our main trading partners – is disquieting.
NSO News Release 225/2005 shows that cruise passengers declined by 11.7 per cent in September 2005 compared to the same month last year, but for the nine months passengers are up 10 per cent on 2004, though still way below 2001, 2002 and 2003.
Finally, I found the report on Government Finance Data for August 2005 (NSO News Release 210/2005 of 30 September). The structural deficit is down Lm21 million on the same position last year and this is totally due to an increase in grants of Lm22 million and an increase in VAT and other consumption taxes of Lm20 million. Collectively these two sources produced an improvement of Lm42 million, half of which went to finance increased expenditure and half resulted in the improvement in the structural deficit.
There was a time when grants, given their temporary nature, were considered as a financing item rather than ordinary revenue, as one can hardly build the durability of public finances on temporary grants. More promising is the increase in consumption tax revenue of Lm20 million. Such growth is normally indicative of economic buoyancy.
But there is irrefutable evidence that the economy is anything but buoyant. The fact that other tax sources, like income tax and social security, have stagnated is not indicative of buoyancy. Furthermore, GDP figures for the first two quarters would in no way support increased consumption as the reason for a 24 per cent increase in government’s receipts from consumption taxes.
Given that special amnesties were in place for a waiver of penalties for overdue payments, the increase in VAT takings is more indicative of one-off efficiency in collection rather than recurrent increased consumption as the Prime Minster tried to indicate in his weekend speech.
As the Prime Minister puts the final touches to the government budget for 2006 to be presented to the House on Monday, he should bear in mind that, above all else, priority has to be given to strong growth in our productive sectors, particularly those that are geared to export demand. We cannot continue building our little statistical macroeconomic growth on real estate/construction and on the duopoly of the financial sector that are driving our dangerous asset price inflation.
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