Malta’s competitiveness, ageing population ‘challenges which cannot be ignored’

In its 2014 forecast, Ernst and Young forecast a 2.2% growth projection for Malta, up from the 1.8% forecasted in June. The growth projection “should outpace the Eurozone this year and next”, EY reports.

The EY’s forecasts continues on positively: firm labour market to support robust private spending and investment, particularly in energy, will continue rising. It also points out that service will continue to perform better than industry while tourism and finance will lead services growth.

Fiscal consolidation will continue as the EY forecasts that the deficit will shrink to 2% of GDP by 2018, driven by higher revenue growth.

Ernst and Young’s projections however also sound a warning on the constraints Malta’s economy will face in the medium term, preventing in from growing by more than 2%.

Summarily, the two main reasons are Malta’s attractiveness to foreign investors – which has slid another six places according to the World Competitiveness Index – and the aging population.

According to EY, having peaked in 2010, the working-age population is already falling, although steady longer-term growth should underpin stable pension spending. Though it has picked up this year, fixed investment remains around a third below its 2007 high.

Senior economic advisor to the EY Eurozone Forecast, Tom Rogers, said Malta should faces these two challenges if it wants a leap in growth and spur employment growth.

“Malta’s global infrastructure ranking is a challenge that Malta must improve,” Rogers said, addressing a conference organised by EY as it launched its economic forecast for Malta.

The World Competitiveness Report, compiled by the World Economic Forum, essentially collates data on how firms view the quality of service, infrastructure, transport, telecoms and so forth provided in the country they operate from. Malta is now ranking 47 out of the 144 countries. In the previous report, it ranked 41st.

Although a subjective survey, the competitiveness index tells you what investors are thinking and it also influences prospective investors.

“Malta’s ageing population is also a key vulnerability and the eventual cost of aging will outgrow that of any other Eurozone country. The challenge Malta faces is to invest in improving infrastructure while facing a higher aging bill,” Rogers added.

The Maltese government is however confident that the competitiveness matter will soon be under control – often citing the reduction of utility bills for businesses, which will take place next March, and red tape.

“Slipping six places is something which should be taken very seriously and it is our target to seeing Malta going up a total of 12 places with the reforms that will be implemented during this legislature,” Finance Minister Edward Scicluna said.

He said that Malta’s weakest links were pensions, the lack of innovation, and Research and Development.

Scicluna also warned against crowding out, but noted that the Fiscal Responsibility Act – recently passed in parliament – will ensure that the deficit remains under control and that the government follows its projected expenditure for the years.

Nationalist MP Kristy Debono, opposition’s spokeswoman for competitiveness, said it was necessary to continue nurturing the financial and manufacturing sector – two sectors which are suffering a slow decrease in business.

“Innovation is key to economic growth. Ten years down the line, we are still reaping the benefits of economic niches. What is the next big thing?” Debono said, adding that the country should not depend on a one-time injection.

She welcomed the launch of a gaming academy, which she described as “a brilliant idea”.

Head of Economics Department at the University of Malta Philip von Brockdorff also said that pensions and the transport reform had to be addressed if Malta wanted to be truly competitive.

He also warned that the government could not abandon the self-employed, which he described as the backbone of the economy. Despite the stiff competition it face, the agriculture sector – including producers and the dairy business – has a yearly turnover of €70 million.