BusinessToday Previous Editions

16.04.2020 7 EDITORIAL BusinessToday is published every Thursday. The newspaper is a MediaToday publication and is distributed to all leading stationers, business and financial institutions and banks. MANAGING EDITOR: SAVIOUR BALZAN EDITOR: PAUL COCKS CONTRIBUTING JOURNALIST: MASSIMO COSTA BusinessToday, MediaToday, Vjal ir-Rihan, San Gwann SGN9016, Malta Newsroom email: bt@mediatoday.com.mt Advertising: afarrugia@mediatoday.com.mt Telephone: 00356 21 382741 T he economic forecast unveiled by the Interna- tional Monetary Fund paints a positive picture for Malta in an otherwise glum situation for the rest of the world. e economic slowdown caused by the COVID-19 pandemic will see Malta's GDP contract by 2.8% this year. If the forecast does materialise, Malta would be ex- periencing the smallest impact from Eurozone coun- tries, and will be among the first to bounce back in 2021. But this is a very big 'if '. e same IMF report says that "there is extreme un- certainty around the global growth forecast", warning that the economic fallout will be "hard to predict". e IMF admits there are still many unknowns in the equa- tion, including the extent of the pandemic, the severity of supply disruptions, shifts in spending patterns and behavioural changes such as people avoiding shopping malls and public transportation. In an open economy like Malta's, recovery will great- ly depend on what happens in key tourist markets and major trading partner countries. Indeed, one Maltese economist, Philip von Brock- dorff has expressed doubts over what he described as the IMF's optimistic forecast. e IMF forecast for 2020 represents a shift of around 7% from 2019 GDP figures. But Brockdorff be- lieves the shift could be closer to 12%, meaning a GDP contraction of almost 4.8% by the end of the year. He argues that the openness of the economy and the heavy dependence on tourism, which accounts for 10% of GDP, could see the effects of COVID-19 last at least until the end of the year. In tourism, he says, the impact could even extend beyond 2020. If the IMF forecast does materialise, the impact of the coronavirus is manageable but this assumes travel and tourism can rebound and recover to 2019 levels in the second half of this year. at is a very big assumption to make and although Malta may still do better than other Eurozone coun- tries, the impact may be bigger than the IMF is sug- gesting. Recovery in tourism will not only depend on when Malta opens its airport and lifts travel restrictions. It also depends on what other airports do. It depends on whether airlines will start to operate and if so, whether they will cut flights, axe destinations and raise ticket costs. More importantly, it depends on consumer behav- iour that will be dictated by two things: appetite to fly at a time when the spectre of COVID-19 will still be lingering in the air, and the financial ability to travel in circumstances where some have lost jobs and many others experienced significant drops of income. On the domestic front, consumer spending may also retract in a scenario of falling incomes and continued uncertainty. And even if restaurants are allowed to open, social distancing requirements may make it un- feasible for many. It may be too early to have a proper assessment of the economic situation at this stage. is is not to say that the IMF's forecast is not welcome. But in the current circumstances all operators, in- cluding government, must err on the side of caution. Contingency plans must be based on the worst possi- ble scenario that could see this crisis protract until the end of 2020, and for some sectors, even beyond that. Government must be prepared to extend its econom- ic rescue package beyond three months and widening the financial safety net without consideration to debt. e package offered so far is good but will have to be improved to cater for more businesses. If what the IMF projects does materialise and the COVID-19 impact is contained to a 2.8% contraction in GDP, we would all be smiling and happily emerging from this dark period much earlier than what the cur- rent predicament suggests. Until then, a conservative and prudent approach dic- tates that Malta should prepare for the worst and hope for the best. Prepare for the worst, hope for the best An uncommon site: Republic Square, or Pjazza Regina, devoid of locals and tourists • Photo by JAMES BIANCHI

• Cover