Issue link: https://maltatoday.uberflip.com/i/1465278
9 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 BusinessToday, MediaToday, Vjal ir-Rihan, San Gwann SGN9016, Malta Newsroom email: bt@mediatoday.com.mt Advertising: afarrugia@mediatoday.com.mt Telephone: 00356 21 382741 S tagflation is a term the In- ternational Monetary Fund tried to avoid in its World Economic Outlook released this week. Stagflation is defined by a pro- longed period of low economic ex- pansion and rapidly rising prices. But despite cutting its global eco- nomic growth forecast and pre- dicting higher inflation, the IMF held back from raising the spectre of 1970s-style stagflation. e fund has forecast global eco- nomic growth this year at 3.6%, down 0.8 points since the fund's January forecast. It said the global economy will suffer a hit to growth and higher inflation as a result of Russia's invasion of Ukraine. Not all countries will be affect- ed in the same way, with the IMF saying that countries closest to the war will be the hardest hit. But risks will intensify everywhere. But the IMF's caution not to use the word stagflation is not shared by everyone. Some analysts pre- dict a higher risk of stagflation in the face of rapid price hikes and global economic slowdown. Stagflation is a nightmarish prospect because monetary pol- icy adjustments to curb inflation run counter to what is currently needed to stimulate economic re- covery. Price hikes across the board are eroding the spending power of families and this will in turn lead to demands on companies for higher compensation. Malta is not immune to this. Sup- ply chain disruptions and higher costs for raw materials have seen prices increase across the board. However, Maltese families and businesses have been spared the onslaught of rising energy and fuel prices with government stepping in to cushion the impact. Finance Minister Clyde Carua- na has gone on record saying that government will do and spend "whatever it takes" to cushion the impact of higher energy costs so as not to jeopardise the post-pan- demic recovery. Government's policy remains unchanged in this regard. Electricity prices have remained stable despite the expiry of the gas hedging agreement with Electro- gas and pump prices for fuel have not changed. Household LPG gas has also maintained the same price. But the rising cost of food is in- creasingly becoming a worrying factor. Caruana has earmarked €6 million for grain importers to keep prices of this staple commodity in check, at least for the time being. Even so, government cannot be expected to cushion all price in- creases. e current subsidies are costing public coffers dearly and contributing to higher debt. is leader believes the govern- ment policy to insulate the domes- tic energy market from the rest of the world when it comes to price hikes, is necessary not to put at risk the fragile recovery. Malta's debt-to-GDP ratio still has a lot of leeway to accommo- date higher spending needs. But this cannot be an infinite prospect. e biggest problem in this strat- egy is the inability to predict when the war in Ukraine will end and how long it will take for markets to regain some form of equilibrium. Within this context, government must make extra judicious use of discretionary spending to mitigate the higher spend on subsidies to protect the economy. Furthermore, the diversifica- tion of Malta's energy generation should be a priority in the years ahead. On a more micro level, support- ing the more vulnerable in society should also be a priority so as to avoid the risk of social upheaval. Supporting the economy and families 21.4.2022