Malta out of the recession… or is it?

According  to the first Quarterly review for 2010, published by Malta’s Central Bank, the country’s Gross Domestic Product (GDP) started recovering in the last quarter of 2009, up by 0.5% from the previous year.

The recovery was driven by net exports, combined with a balance in domestic demand, a less rapid rise in unemployment and an improvement in business sentiment. However, consumer confidence remained fragile.

National Statistics Office (NSO) Director General Michael Pace-Ross told MaltaToday “The latest GDP estimates for Malta indicate an upward trend, and therefore technically Malta is out of the recession. This is likely to continue as worldwide industrial production resumes after running down on inventories.”

However, Pace-Ross added, “One should note that economic uncertainty persists in some developed economies on which Malta is dependent.”

Dr Gordon Cordina, economics lecturer at the University of Malta, said that according to Malta’s statistics, “output has grown for the past six months, mainly due to personal and financial services, however growth is not as yet widespread across all sectors of the economy.”

Economist and Labour Member of European Parliament Edward Scicluna, in an article for the Times earlier this month, looked towards Maltese workers for the country’s economic improvement. “As Maltese we are lucky to live in a country endowed with high quality workers and entrepreneurs; the resilience of the economy is owed to them,” he said. Scicluna added: “Another factor is the economy’s built-in economic stabilisers, which have cushioned the economy from the worst ravages of the recession.”

Economist and Malta Development Corporation founder Karmenu Farrugia replied candidly about Malta’s position, stating: “Comparing a quarter with its corresponding quarter in the previous year is not the way to decide whether an economy has come out of a recession… though latest published statistics indicate that we are exiting the recession, we are not out of it yet.”

MaltaToday went on to ask the experts whether, from an economic perspective, they agree with Finance Minister Tonio Fenech’s claim that “income tax cuts have to wait” in time of a recession.

While the NSO declined to comment on the statement, Dr Cordina said “Tax cuts may or may not be effective, but would only be justifiable if they stimulate increased spending or saving which leads to the creation of jobs in the domestic economy without causing an increase in public debt.”

Scicluna, on the other hand, said “Economics at its most basic teaches us that we should spend more and tax less in bad times and do the opposite in good times.” Assuming that Malta is currently still experiencing bad times, he said “Politicians in government are often heard telling us the opposite; that we cannot afford to cut taxes during the recession and we must wait for good times in order to deliver a tax cut.”

“I believe the government, with the recent needless price shocks it gave to the economy, has left the country with little or no appetite
for economic change,” Scicluna said.