Out of recession, but household consumption is falling – Labour

Labour MP Charles Mangion has insisted that Malta's economic growth in the last quarter had not yet taken the country out of the doldrums, after the PN took the party to task for not hailing recent growth figures.

"Malta is technically out of recession and government wants to take credit for this development. However, at the outset it must be stated that while Malta was technically in recession, the euro area was not yet technically in recession. Therefore it is disconcerting how the Maltese economy contracted before the euro area," Mangion said.

Malta experienced two consecutive drops in growth of its gross domestic product of -0.3% and -1% between September 2011 and March 2012. Quarterly figures issued by the National Statistics Office this week confirmed Malta's 0.9% growth in gross domestic product for the second quarter of 2012 had taken out the island of the recession.

Finance Minister Tonio Fenech had attributed Malta's recessionary slide due to some €22 million in losses incurred at Enemalta, and a drop in exports for ST Microelectronics. Fenech said the fact that the utility rates had not been increased had contributed to further losses at the national energy corporation, despite hikes in international oil prices.

But Mangion yesterday poured cold water over the recent growth gains.

"GDP growth of 0.9% in Q2 is not a sufficient growth rate for a country that aspires to have living standards converging at EU levels at an acceptable pace.

"More significantly is the fact that while the principle goal of any government should be that of implementing policies that help to improve living standards of its own citizens, the latest data show that this is not the case."

The latest GDP data for the April-June period shows that domestic demand, which comprises consumption by households and government, and investment fell by 1.5%, continuing from falls of 1% in the first quarter of 2012 and 0.2% in the last quarter of 2011.

"More significantly, this increasingly negative trend in domestic demand is entirely attributable to worsening consumption trends for local households, which after growing by 1.1% in Q4 of 2011, fell by 2.3% in Q1 of 2012, with the decline steepening further in Q2 to 3.2%.

"Investment expenditure also worsened in Q2, declining by 1.7% after falling by 0.8% in Q1. Indeed, investment has been declining for at least the past successive six quarters. This dispels comments given by the finance minister to The Times who said the GDP growth was due to higher investment."

Mangion also called into question claims by Fenech that better paid jobs were fuelling the growth of the economy.

"Growth in compensation to employees slowed down to 2.6% in Q2 of 2012. More worryingly, the fact that inflation in Q2 picked up to 4%, this means that in real terms compensation to employees fell, implying loss in purchasing power. On a 'per employee' basis, real wages continued to decline, implying that Maltese families continue to remain in recession.

"It is no surprise that in view of falling real incomes, household consumption has fallen during each of the first two quarters of 2012, as confirmed by Eurostat data that Malta has been recording one of the strongest declines in retail sales in the EU."

A statement released by the Nationalist Party, questioning why both the Labour Party and General Workers Union remained mum on Malta's official emergence from recession, read: “The Labour Party (PL) is so negative that it fails to recognise the country’s great economic achievements, especially when compared to other EU countries."

“Economic growth isn't a small achievement and doesn't come by chance, leading to the creation of more job prospects, accompanied with improved salaries, with the result of both workers and their families enjoying the fruit the country bore in this respect.

“This is an important achievement that hasn’t come easy but with both the help of hardworking employees and employers of small and medium enterprises (SMEs), coupled with a hard-working administration that has created 20,000 new jobs.”

The PN questioned why Joseph Muscat’s party, the General Workers Union and its newspaper l-Orizzont remained mum on the positive news that Malta stepped out of recession, something that the PN feels the union that represents workers should have welcomed wholeheartedly.

“Besides, instead of focusing on the positive news that Malta officially stepped out of recession, Labour’s newspaper l-Orizzont was much more focused on the hatching and excavation of the sea turtle’s eggs instead,” the statement read.

Meanwhile, the PN also hit out at Prof Edward Scicluna, a Labour MEP, and an economist who, according to the PN, believed that the economy during the 1970’s and 1980’s, a time when Dom Mintoff led the Labour Party and when unemployment was at its highest, was stable, describing him as a "bad economist".

“When asked by The Times why a day before the news broke out that Malta emerged from a recession, stated in an article that he forecast Malta wasn’t going to accomplish any further economic growth, Sicluna replied to the newspaper that in that particular article he had just passed a casual comment.

“It’s incredible that the person to be entrusted by Muscat as finance minister, makes such false assumptions,” the statement added.