Cautious Optimism

15^th December 2006
The Malta Independent - Friday Wisdom

Economic data is continuing to show a general improvement in Malta’s economic performance. Provisional estimates for the third quarter of 2006 indicated an annual GDP growth in real terms of 2.7 per cent. International trade statistics for October 2006 have shown a small narrowing of the trade deficit for the month compared to the same month last year, with a 17 per cent increase in exports and a 22 per cent increase in imports of industrial supplies. The latter is indicative of further potential for export growth in the pipeline.

None of this should necessarily lead to the euphoria expressed over the weekend by the Prime Minister during the normal Sunday ritual of economic bulletins within the strange confines of local political party clubs, where people are more interested in beer than economic statistics.

However there is scope for cautious optimism; so much so that the opposition’s criticism of the government’s economic performance is rapidly losing its punch.

A 2.7 per cent real annual GDP growth is to my mind way below our natural potential for growth which is nearer to five per cent. We do in fact need much higher growth rates nearer to our indicated potential if we are to make progress to catch up on the EU average of GDP by 2013, after which period we will experience a substantial reduction in EU grant revenue. But considering that we are coming from a negative outturn of –2.3 per cent in 2003, a meagre 0.8 per cent growth in 2004 and 2.2 per cent in 2005, the progress is noticeable.

What gives scope for cautious optimism for 2007 are several factors which seem to augur for a stronger economic performance for next year. The economic growth recovery in our main export markets of the EU is remarkable and all indications are that economic growth in Europe will overtake that of the US next year. Strong economic growth in overseas markets leads to stronger demand for our manufacturing exports and in fact we are witnessing substantial growth of pharmaceuticals and microchip exports.

The 2006 performance is encouraging considering that one of our major industries, tourism, was working at half throttle. Nobody should doubt our potential to re-achieve strong growth in our tourism sector and if we manage to do it in 2007, then by and of itself this could add between one and two per cent to the GDP growth for 2007.

If on top of this we could be favoured by a more benign environment for international energy prices, even if this were to mean merely that oil prices would stay at around the current $60 level and the US dollar stays at around 1.32 to the euro, then the government could justify converting such cautious optimism into real registered growth that could lead to pre-election euphoria.

Clearly the government is banking on this sort of scenario as a favourable background leading to the general elections, hoping that the feel-good factor resulting from such economic growth will be enough to persuade the electorate to stay the course with whom they know rather than opt for change for change’s sake.

The government also knows that infrastructure projects to be financed by the EU grants under the 2007-2013 financial programme, will add further impetus to economic growth and resultant feel-good factor.

Yet there is no doubt that among the electorate, the government is suffering from fatigue and perceived arrogance. Many I meet doubt whether any amount of feel-good factor would be enough to overcome the desire for change after more than 20 years of the same faces in power, excluding the largely forgotten interlude of 1996-1998.

It would take a very high dose of such feel-good factor to give the PN scope for euphoria about their prospects for re-election.

On the other hand, the PN knows it has more than the feel-good factor to aid them in winning the electorate’s favour.

The point that Labour has been fossilised under an unsuccessful leadership for 15 years is being made with forceful persuasion.

Pity Labour could not find the courage and wisdom to present itself for the electorate’s choice not only with new policies but more importantly, with new candidates who do not carry the baggage of the misguided policies that changed the freshness of the1996 victory into failure of not being able to hold on to the executive power delegated by the electorate for even half a legislature in 1998.

Labour is not helping democracy to express itself through practical alternation of power.