BusinessToday Previous Editions

M any have been looking forward to a gradual return to normality. Some thought this would happen when the Delta variant of the COVID-19 virus started waning. But this was quickly replaced by a stronger variant - Omicron. e pandemic has slowed down the global economy while in Europe there has been a late attempt to create funds for boosting sluggish economies and keep thousands of workers on the work books by a state allowance through hast- ily devised furlough schemes. Now almost two years down the line, since the first lockdowns, Europe is see- ing a light at the end of the tunnel. Some say not a moment too soon. is growth sign was attributed to the eurozone – the 19 EU countries using the euro – exiting two months of tough restrictions designed to slow the spread of the Omicron variant. Omicron is now the dominant strain in Europe, but gov- ernments regard it as less grave than previous variants because widespread vaccinations and booster jabs have mut- ed its impact. Economic growth in the eurozone jumped sharply this month as coronavi- rus restrictions were eased. In fact, the latest Eurostat data shows that the full 27-country EU economy grew by 5.9 per cent. Analysts said the rebound showed strong divergences especially late in the year. Contrast the negative growth in Ger- many during the final quarter while France, Spain and Italy expand healthi- ly. France, was doing well, with growth at an eight-month high. Naturally, one has to mention the serious shortage of digital chips which have adversely hit manufacturing especially of cars and ap- pliances. In fact, manufacturing output in the euro area would have been six per cent higher without the supply troubles. Labour shortages and a worn-out in- frastructure do have more persistent effects on supply and inflation than shutdowns due to Covid e shortage of microchips and the effect of higher cost of freight especially from Asia have all contributed to slower global supply chains. In fact, the IMF says that, with- out these obstacles, Germany and the Czech Republic would have seen an in- crease of 14% in output. In contrast, official data shows Britain's economy grew by a record 7.5% last year on easing COVID curbs after a pandem- ic-driven collapse, but analysts warned that sky-high inflation clouds the 2022 outlook. e UK recent expansion in output, which was the fastest since re- cords began in 1948, followed a record 9.4% slump in 2020. Grounds for pos- itivity was the expectation amongst investors that "coronavirus-related re- strictions would be relaxed", allowing an economic recovery in the first half of 2022. e airline and hospitality industries are both victims of the restricted people mobilisation during the past two years. Both industries have been kept afloat on the drip by national governments while millions in losses accumulated in their balance sheets. Again, there is hope that due to the slow improvement in the global pan- demic situation, one can expect an im- provement of international and long- haul travel figures – the revenue stream that has been the most depressed in the past two years for airlines. Even though Omicron still creates un- certainty among airline managers, this will probably not continue to severe- ly impact airline profits in the warmer months as the virus subsides. Addition- ally, the pandemic is increasingly accept- ed as an endemic disease and is tackled as such by more and more countries that are also supporting our view of improv- ing air passenger market conditions. What is the general prognosis for the future? In general, one observes how manufacturing increased slightly, at- taining the fastest expansion since 2021, thanks in part to improved supply avail- ability and a rise in demand. However, supply constraints remained, causing backlogs, and raising average prices for goods and services. Again, due to the uncertainty arising from the Ukraine crisis, Europe faces soaring energy costs and rising wages. e UK and most European govern- ments are willing to temporarily counter the resulting 'heating poverty' by subsi- dising energy bills for households, forc- ing energy providers to take losses, im- posing windfall taxes on oil companies or to scrap VAT on electricity. Central banks were too optimistic be- lieving that inflation would come down by itself once the economy settles on a normal, post-pandemic path. Already, there are signs that bank interest rates will go up. is will hike the cost of bor- rowing more aggressively with a pur- pose to bringing inflation down. e side effects of this monetary policy are possibly to disrupt growth. e standoff with Russia over the feared invasion of Ukraine and other threats of pipeline and payment embar- goes has quintupled gas prices in Eu- rope. Back home and the Central bank of Malta (now run by an ex-finance minister) said that in 2022, domestic de- mand is expected to be the main driver of growth, reflecting strong growth in private and government consumption. In addition, net exports are projected to also contribute strongly this year, as exports accelerate, while imports are projected to grow at a slower pace. e general government deficit is expected to narrow substantially over the remain- der of the forecast horizon as COVID-19 measures unwind and macroeconomic conditions improve further. In two years, the Central Bank forecast the deficit now at 9.5% to narrow down to 3.3% of GDP. On its part, the general government debt-to-GDP ratio is pro- jected to stand at 60.9% of GDP in 2024. All this bonanza is being announced at the cusp of a general election. D-Day is Saturday 26th March. Cit- izens are inundated by promises of a golden future by the two main parties even though one is surprised why the Labour Party, now in power for nine years needs to dangle a bigger carrot when surveys show they are expected to win with a landslide. A recent promise by the incumbent to the party faithful was the splurging of a €700 million allocation (over 7 years) to improve green pastures and landscap- ing of parks and gardens for each village core. Hot on its heels, is the pledge by the Opposition party to invest €1 billion to generate ten new niches for growth. ese niches are ambitious given that currently the island is grey listed by the FATF. One niche which caught the ad- miration of many was the €100 million investment in MetaVerse, a software technology pioneered by Facebook. It is a pity that none of the manifestos by main parties have ventured to invest in clean and renewable energy potential (producing green hydrogen) available in the recently declared new acreage under the Economic Exclusive Zone. In conclusion, one hopes that as ex- plained above, European economies will in 2022 usher a new cornucopia of growth, abundance and wealth. Is Europe heading towards a strong recovery? George Mangion George Mangion is a senior partner at PKF, an audit and consultancy firm, and has over 25 years' experience in accounting, taxation, financial and consultancy services. His efforts have made PKF instrumental in establishing many companies in Malta and established PKF as a leading professional financial service provider on the Island 8 OPINION 17.2.2022

• Cover