Enemalta losses, drop in STM exports contributed to negative growth – Tonio Fenech

Updated with clarified statistics at 6:40pm.

Finance Minister Tonio Fenech has attributed Malta's recessionary slide due to some €22 million in losses incurred at Enemalta, and a drop in exports for ST Microelectronics.

In comments to MaltaToday, Fenech said the fact that the utility rates had not been increased had contributed to further losses at the national energy corporation.

"But this confirms the position taken by the government at the start of 2012, that the deteroriation of the international economy, particularly in the eurozone, and the increase in the price of oil would impact the country," Fenech said.

Malta experienced two consecutive drops in growth of its gross domestic product of -0.3% and -1% between September 2011 and March 2012, indicating the economy's slowdown may be experiencing a recession.

In real terms, GDP decreased by one per cent - household consumption fell by 4.4% in the last quarter compared to the same quarter last year. but government spending had increased by 10% (q1:2012 compared with q1:2011). Additionally, the NSO data states that exports in the fourth quarter of 2011 increased by 3% (compared to the same quarter in 2010), and by 0.79% for the first quarter of 2012 (compared to the same quarter in 2011).

Fenech said Enemalta's losses were a direct result of the rising price of oil, and it was evident the effects of these losses would impact GDP after government decided not to raise energy prices.

"Without the negative impact from Enemalta, Malta would have had a nominal 2.4% increase."

Fenech was upbeat about other economic sectors, saying exports rose by 4.3% but a drop in exports at ST Microelectronics had left its mark. "Despite all this, Malta retains low levels of unemployment, the highest level of job creation in the EU, and as the statistics show, salaries paid out this year were 3.3% higher than the last quarter of 2011."

While Fenech has tried to remain upbeat about the disappointing results, Labour MEP and economist Edward Scicluna said a cursory look at the GDP statistics provided a very murky picture of what is going on.

"There is a stated 'error' between the three methods of GDP measurement of about €135 million, so it's hard to get a clear picture. What's clear is that consumers are holding back from spending more than their incomes allow them. While their nominal incomes increased by 3%, their consumption fell by 3% in nominal terms. Profits overall fell too though taxes increased substantially.

"Sector wise it looks like incomes in the financial sector have reached a plateau over the last year. The 'productive' sector which includes manufacturing fell significantly. The overall export sector managed to hold its real value over the year and perhaps increased marginally in real terms too."

Former Mid-Med Bank chairman and economist Alfred Mifsud also said the data suggests the shrinkage in the Maltese economy was taking place concurrently with an increase in government expenditure. "This could be actually hiding the real depth of the recession that Malta is in.

"Despite government's expenditure during that time, the overall economy has contracted nevertheless. This means the private sector has contracted even more," he said, because government spending was mainly in the public sector.

"This is worrying because it is the private sector that earns the real money," Mifsud said. "This suggests that the [recession's] real depth is bigger than what the figures are suggesting and that government spending could have 'inflated' the country's economic performance."

Provisional estimates indicate that the gross domestic product (GDP) for the first quarter of 2012 amounted to €1,556 million, an increase of 1% compared to the corresponding quarter last year.

There was a major fall in wholesale and retail trade, a broad category that also includes motor vehicle repairs, transport and storage, accommodation and food services, which fell by 20% in the fourth quarter 2011, and again by 7% in the first quarter of 2012.

The rate of growth overall fell from 4.8% to 1.6% in the fourth quarter of 2011, and to 1% in the first quarter of 2012.