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2 maltatoday | SUNDAY • 25 DECEMBER 2022 NEWS Christmas specials • War in 2022 From COVID to war: How hope mixed with despair The start of 2022 was one filled with hope as people could see an exit strateg y from the pandemic. But one man's folly to invade a neighbouring country in the heart of Europe disrupted the smooth transition to normality ONLY one year ago, prepara- tions were underway to start vaccinating children during the Christmas holidays, while boost- er shots were being offered to adults. The new COVID-19 variant was wreaking havoc once again and restrictions were in place to limit the spread but it was also a time for hope. The renewed vaccination ef- forts, including among chil- dren, would set the pace for a gradual lifting of restrictions throughout the first six months of 2022. Details of the exit strategy would be given by Health Min- ister Chris Fearne at the start of February, promising a return to normality by May. But what started as a year full of promise and hope, soon turned sour by the end of Feb- ruary when Russia embarked on a full-scale invasion of Ukraine. A war in the heart of Europe, rocked markets, disrupted economies and created uncer- tainty among people. The war also exposed Europe's danger- ous dependency on Russian gas. The dual impact of EU-im- posed sanctions on Russian energy products and Russia's decision to weaponise gas sup- plies by restricting flow, caused energy prices to soar. And with Russia and Ukraine both being major global grain suppliers, the price of this sta- ple food product also shot up. The spectre of runaway infla- tion overshadowed any notion of a smooth post-COVID eco- nomic recovery. Energy subsidies Malta was not immune to all this but a government decision to cushion the impact of fuel and electricity price increases ensured that consumers kept paying stable prices. The outlay on energy, fuel and grain subsidies cost public coffers more than €400 million in 2022 and the continued sup- port in 2023 is expected to cost a further €600 million. Over two years, Malta would have spent €1 billion on sub- sidies and yet finance ministry forecasts show that the debt- to-GDP levels are set to remain in line with the EU's stability and growth pact. Debt is expected to go up- wards of 60% in 2024 and even then, by a mere 0.3 percentage points, putting Malta in a much better position than most other euro zone countries despite the hefty expense on subsidies. The ministry forecasts that 2022 will end with a debt-to- GDP level of 57%, and is set to go up to 59.1% next year. By 2024 it will reach 60.3%, and will dip back down to 60% in 2025. Malta's real GDP growth in coming years is set to hover be- tween 3.5% and 3.8% and will remain above the EU average. Budget forecasts show that real GDP growth will fall to 3.5% next year, after standing at 6% in 2022. In 2024, it will rise to 4.3%, and fall back to 3.8% in 2025. The economic headline fig- ures for Malta look brighter than most in the EU but in- flation caused by rising food prices and the cost of servic- es will remain a big headache for households. Pockets were squeezed in 2022 and will con- tinue being squeezed next year. From supply chain disruptions to war-fuelled inflation Inflation started rearing its head before the Ukraine war, fuelled by supply chain dis- ruptions as a result of the pan- demic. A lack of containers, restrictions in Chinese ports impacted by quarantine and isolation rules, a lack of pro- duction caused by COVID-era closures, contributed to supply side restrictions at a time when consumer demand was grow- ing. This caused prices to start rising towards the end of 2021 and into the start of 2022. The Harmonised Index of Consum- er Prices published by the Na- tional Statistics Office shows that the annual rate of inflation increased from 1.4% in Octo- ber 2021 to 2.6% in December that year. By January 2022, inflation rose to 4.1% with the upward trajectory taking a sharp turn up in April as the full impact of the Ukraine war started to be felt. From 5.4% in April, annual in- flation reached a peak of 7.4% in September and October. It moderated to 7.2% in Novem- ber but the Christmas period was still expected to be more expensive than previous years. Shielded from the high energy and fuel prices afflicting other European countries, Maltese consumers have had to contend with higher foodstuff prices, particularly higher increases in refined oils, vegetables, sugar and pasta. If one were to exclude the energy component from infla- tion statistics, Malta's infla- tion would be higher than the EU average. The squeeze on pockets was not just a percep- tion and the cost of living has returned as a main subject of concern for consumers. A MaltaToday survey in Oc- tober found that 80.7% of peo- ple identified higher prices as the main impact the war in Ukraine has had on them, fol- lowed by 9.6% who said fear of getting involved in the war was the principle impact. But the same survey found that a relative majority of Mal- tese (44.7%) felt the situation in Malta was better than other countries, while 30.1% felt it was the same, indicating a gen- eral sense of positivity. Re-drawn alliances The stability in energy and fu- el prices has largely contribut- KURT SANSONE Architecture & Design magazine Architecture & Design showcases the very best work in architecture and design and acts as a platform for debate and discussion of the issues that matter to the building industry BE SURE TO COLLECT YOUR FREE COPY WITH MALTATODAY