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18.04.19 14 OPINION Aaron Farrugia Aaron Farrugia is Parliamentary Secretary for EU Funds and Social Policy W e shouldn't take economic growth for granted. Espe- cially for such a small, open economy like ours. While it is true that, in the words of the economist E.F Schumacher -- or rather his teacher, Leopold Kohr -- Small is Beautiful, as policy-makers of such countries are more flexible and targeted in their actions, 'small' still remains economically challenging. In the case of Malta, 'small' trans- lates into permanent vulnerabilities, such as insularity and diseconomies of scale. And in this regard, the presence of these vulnerabilities actually shine a brighter light on our economic suc- cess story. The global outlook also puts Mal- ta's results into a positive context. In a scenario where interest rates and commodity prices remain low or con- tained, the IMF has recently cut global growth outlook again, now expecting the world economy to grow by 3.3% in 2019, down from 3.7%. This is mainly due to trade tensions and tighter monetary policies which could hurt the global economy. Clos- er to home, the ECB President has recently spoken about Eurozone eco- nomic data being weaker than expect- ed. And Germany, Europe's largest economy, is currently going through a factory orders contraction (as meas- ured by the Purchasing Managers In- dex), which is being reported as being worse than initially reported. And what about the Brexit uncer- tainty? It has clearly had a negative impact on Britain, as GDP fell 0.3% in Decem- ber 2018, grew 0.5% in January and just by 0.2% in February (so overall growth for the three months to Febru- ary was 0.3%). Real GDP growth cannot be taken for granted. Euro area GDP growth has never ex- ceeded the 2.5% mark since returning to positive territory in 2014 (highest at 2.39% in 2017). And for 2019, the Euro area GDP forecast stands at 1.3%. On the other hand, in Malta, during the period 2014 to 2018, GDP growth has registered an impressive 7.6%. The EC's own forecasts for Malta pro- ject growth close to 5% for 2019. Inflation cannot be taken for grant- ed. We have gone from worries of de- flation a few years ago, to a stable in- flation rate which remains below the ECB's target rate of 2%. The EC fore- casts an inflation rate of 1.8% for Mal- ta in 2019, which is approximately the same as last year's 1.7% rate. In the meantime, latest figures in- dicate estimated 2019 inflation rates above 2% for other fellow EU MS, such as Belgium, the Netherlands, and the Czech Republic. Employment cannot be taken for granted. Our labour force has converged to EU activity rates in the space of a mere six years, growing from 63.9% in 2012 to 72.2% in 2017, with the activity rate in Q4-2018 standing at 75%. The EU28 activity rate stood at 73.3% in 2017. In terms of unemploy- ment, this stood at 2.1% in Q4-2018 as measured by the Labour Force Survey. Again, to put matters into perspec- tive, the unemployment rate in the euro area as at February 2019 stood at 7.8%, with countries registering above average rates including larger econ- omies such as Greece (18%), Spain (13.9%), Italy (10.7%), and France (8.8%). The budget balance also cannot be taken for granted. We all recall past local discussions on how to reduce losses in state- owned enterprises, measures to re- duce taxes, and excessive deficit pro- cedures. These all seem far off times, with Malta registering its first fiscal surplus in decades in 2016 (0.9% of GDP). A fiscal surplus, which falls under the concept of fiscal balancing, is a widespread strategy in various coun- tries, especially in Nordic ones. However, a closer look at other countries' budget balances indicate a somewhat different picture – Euro area (-1.1%), France (-3.4%), Italy (-2.9%), Spain (-2.4%), Poland (-2.4%) and Britain (-1/6%) are all projected to register deficits in 2019. Linked to the point on budget bal- ances is the national debt, which is on a downward trajectory and has fallen below the ECB's 60% threshold since 2015. Tourism figures are also a KPI which cannot be taken for granted. Inbound tourist trips in 2018 reached nearly 2.6 million, a stagger- ing increase of 14.3% over 2017. Again, discussions on whether Malta could ever exceed the 2 million mark now seem distance, with this land- mark being exceeded in 2017. These are both macro- and mi- cro-economic successes – they are the merit of the public sector provid- ing direction, and of the private sector following through with further busi- ness direction and investment. But this is not all – the story cannot stop here. So what comes next? Success brings with it growth chal- lenges, such as infrastructure and mobility, adapting to changes in tech- nology and the environment, and de- mographic shifts. But the economic cushion we've built together will allow us as a nation to look positively at these long-stand- ing national challenges, especially if these are actually viewed as opportu- nities for further growth. In fact, initiatives and measures to address these challenges will inevita- bly bring together various economic agents through investment and con- sumption decisions. And, as a society and economy, through the process of addressing these challenges, we will be adapting to changing circumstances, thus com- ing out stronger at the end. But we cannot take this adaptation for granted – we must work together to achieve it. Acknowledging Malta's economic success story

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