All is well now. Or is it?

Posted in 1 by Editor on July 20, 2010

Finance Minister Tonio Fenech told Parliament last Wednesday that “Malta had already come out of recession and the first quarter had shown an economic growth of 3.4 per cent”. The minister was quoting the National Statistics Office’s press release of June 9, announcing provisional estimates for gross domestic product for the first quarter this year. While this is certainly positive news, we need to keep our feet firmly on the ground.

The NSO release provides a helpful table showing quarterly real GDP growth for a number of years. Looked at in this perspective, we observe that, whereas in the first quarter of 2007 the Maltese economy grew in real terms by 4.6 per cent, it grew by only 2.1 in the same quarter of 2008 and then shrank by 2.0 per cent in the same period of 2009. So the 3.4 per cent achieved in first quarter 2010 is the first positive year-on-year first quarter result after the negative growth of first quarter 2009. If we look at results for all quarters of 2009 we observe that the Maltese economy shrank by 2.0 per cent in the first quarter over the same period in 2008, by 3.4 in the second quarter, by a further 2.0 in the third and, finally, emerged into positive growth with a modest but significant 1.3 per cent in the fourth quarter.

From this point of view, the result of the first quarter 2010 is the second positive. Now look at annual GDP growth at constant prices as reported in the same NSO release. We grew by 3.9 per cent in 1995, by 3.6 in 1996, by 3.8 in 2007 and then slipped down to only 1.7 in 2008. In 2009, then, we actually shrunk (negative growth) by 1.5 per cent. When we compare these results with the series provided in the International Monetary Fund’s World Economic Outlook 2010, these agree with the NSO’s results for 2005 to 2007 but give different results for 2008 (2.1) and 2009 (-1.9). There are certainly technical reasons for this. In any case, I am not referring to them to point out the discrepancy.

The IMF series is interesting because it provides forecasts for Malta’s annual GDP growth. Thus, it forecasts a 0.5 per growth for the whole of 2010, going up to 1.5 in 2011 while for 2012 and 2013 it indicates 2.5 and 2.6 respectively. Certainly, all things being equal, it does not indicate growth rates above three per cent in the foreseeable future. There are two points that suggest that we should keep our feet solidly planted on the ground. Firstly, regarding the tired old question of what is a recession and, following from it, what does it mean to come out of one.

If one sticks to Shiskin’s “two down quarters of GDP” rule of the thumb for defining a recession (actually it was only one of a number of rules), then there is a lot to say for a “two up quarters of GDP” rule for declaring that a country is out of recession. From this restricted point of view, first quarter 2010 results should be interpreted very cautiously. Serious observers prefer to look at a broader set of indicators determining the beginning and the end of a recession but even the more simplistic of rules of the thumb suggests we do not get overexcited.

Which is not to say – I repeat – that results so far are not encouraging. Employees who have been told that their difficulty in making ends meet is due exclusively to the global recession and who were strongly advised by this government to suffer in silence can now begin to whimper. Or not?

Minister Tonio Fenech: protecting himself from the impact of his words?

The second and more substantial point is that made in the IMF’s WEO of April 2010. We are warned that the “global recovery is proceeding … tepidly in many advanced economies”. Now bear in mind that we export our goods and services precisely to and get most of our tourists from these “advanced economies”. Moreover, “risks to global financial stability have eased but stability is not yet assured”. Further: “The outlook for activity remains unusually uncertain and downside risks stemming from fiscal fragilities have come to the fore. Moreover, sovereign risks in advanced economies could undermine financial stability gains and extend the crisis. The rapid increase in public debt and deterioration of fiscal balance sheets could be transmitted back to banking systems or across borders.”

The update to the WEO of July 7 warns that “downside risks have risen sharply amid renewed financial turbulence. In this context, the new forecasts hinge on implementation of policies to rebuild confidence and stability, particularly in the euro area”. The latest Central Bank of Malta Quarterly Report – the same one that announces that sentiment among manufacturing firms and consumers has deteriorated in first quarter 2010 – adds that, in these circumstances, “broader structural reforms remain necessary to ensure that the Maltese economy safeguards its external competitiveness, especially since key trading partners are engaged in radical adjustments of their domestic cost structures”.

The point is that Minister Fenech should avoid giving the impression that all is well now. It isn’t and not only because of external conditions. A wiser minister would factor in other elements including his own shortcomings. And his Prime Minister’s. Now more than ever, the more sober observers realise the political cost to the government of having “promoted” John Dalli to Brussels.

This article appeared on Dr Vella’s regular column on The Times of Malta on June 19, 2010. The original may be accessed at http://www.timesofmalta.com/articles/view/20100719/opinion/all-is-well-now-or-is-it


Realism in Middle Space

Posted in 1 by Editor on July 8, 2010

We are hurtling towards the second decade of the first century of the third millennium. I was about to write that we are hurtling  ‘headlong‘ towards the second decade of the 21st century but on second thought I decided otherwise. To hurtle headlong means to move forward with the head foremost, with head leading, head first. I couldn’t write that.

We are certainly hurtling at great speed towards the second decade of what only 10 years ago we hailed as the new century, but are we doing so with the head leading? My feeling is that we are hurtling spread-eagled in space, spinning wildly, disoriented, sometimes moving forward, sometimes sideways, sometimes backwards and, more often than not, with our posterior leading the way.

Some will say that this state of affairs is a universal one, in the sense that it is an apt description for the whole of mankind, at least in our time. That may as well be but I am, here, specifically concerned with our own society, with the roughly 412,000 individuals that inhabit these islands today, especially those among them that identify themselves as Maltese, including those that study or work abroad and yoyo back and forwards to and from these dusty rocks.

Unfortunately there is no space here to discuss the very relevant question of what it is that causes an otherwise very disparate collection of individuals to respond to the interpellation ‘Maltese!’ Some may do so proudly and some begrudgingly, some will stand up to be counted, others will make themselves as invisible as possible, but pay attention they all will. In the last instance, this almost reflex response is a common characteristic that none of them can sincerely deny.

Now, it is a common place that we Maltese are highly polarised politically. On both sides of the political divide there is a core of electors for whom their own party can do no harm and the party of the others can do no good, a priori. There is however a tendency for these two cores to shrink and for the space between them to broaden. Nothing dramatic. The rate of shrinkage is almost imperceptible and the space formed very modest but it is a space nevertheless, and it is making a difference. This space is occupied by persons who will not content themselves with a set menu but will ask to order à la carte.

Middle Corona. Total Solar Eclipse of 1999 Aug 11 (Lake Hazar, Turkey). Courtesy of Ford Espenak

This middle space is home to persons hailing from a variety of social, cultural and political backgrounds. What the inhabitants of Middle Space have in common is a decreasing tolerance of intolerance. Although this set of electors is the least compromising as regards the quality of politics of either party and of standards of governance of whoever is governing, it is also the most likely to be ready to make compromises with others whose worldview is different from theirs. So long as the “other” concerned is also intolerant of intolerance, of gutter politics and shoddy governance.

This willingness to come to a compromise with persons of different views is, if I read the situation correctly, also based on the realisation that diversity in today’s world is a fact as well as a value to be cherished. The ‘other‘  need not be an enemy to be vilified at all costs. The  ‘other‘ can be a partner in the search for the best possible solution – I emphasise “possible” as opposed to ideal – to the complex problems facing our society.

The distinction between possible and ideal solutions to our problems is critical for an understanding of the inhabitants of Middle Space. We are not talking about the last of the great romantics who dream of a third party that will sweep a jaded electorate off its feet and charm it into voting for whatever ideal solution they prescribe. We are not talking about arthritic apocalyptic horse-riders of the Absolute emerging from the fog of war trailing pennants inscribed with the old warning that what is worthwhile is not possible and that what is possible is not worthwhile.

Middle Space, on the contrary, is inhabited by the first of the great realists. They have no illusions about what can be done but they know that what can be done must be done and done well. The Nationalists among them have lost hope in this government although some of them are looking forward to a radical renewal of the Nationalist Party, the sort of genuine reconstruction that could have started in 1996 but never took place.

Many of them remember hailing the PN’s return to power in 1998, after less than two years in opposition, as a blessing. Today they are more inclined to interpret it as a curse in disguise. A renewal, from the roots up (hence radical), will need time. Not less than one term in opposition, possibly more. Why in opposition? Because a party in power cannot realistically reconstruct itself radically.

In power, especially if you have been there for almost a quarter of a century with hardly a break, you can at best go for a cosmetic job. The result can be pathetic. An indicator of how botched the cosmetic job has turned out to be, is given by the insistence with which the concerned party attempts to convince itself that others are even uglier. Or at least not less ugly than itself.

This article appeared in Dr Vella’s regular column in The Times of Malta on Monday, July 5, 2010 and may be accessed at http://www.timesofmalta.com/articles/view/20100705/opinion/realism-in-middle-space