Issue link: https://maltatoday.uberflip.com/i/1514336
8 OPINION 11.01.2024 2024 - the challenges of a fast economy 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 M any articles have been published about what to expect this year. There are many predictions but what eventually happens is beyond any powerful crystal ball. However, it is reasonable to predict that events and trends which made the head- lines last year can help us foretell the events - on the notion that some continua- tion occurs. This year, the EU will have a new Commission with an onerous economic and governance reform agen- da and we shall elect a cohort of six MEPs to represent us commensurate to our area - an island of 316 km², yet so far this geographical limita- tion has never been a limit to the size of our ideas. As always, hard work mat- ters. Integrity also matters, so we need to recommit our- selves to the fact that our rep- utation is paramount. Medi- ocrity has no place in Malta's strategy for the future. Cred- ibility is the cornerstone for a strong economy and a relia- ble country. To us islanders – there is nothing we could not do. It was that dream that drove us to join the European Union, it led to transform our econo- my, with generous funds since 2004 that helped transform us to enjoy a higher standard of living. The impact of gen- erous subsidies on energy and food prices has been benefi- cial resulting as the main rea- son why Malta's core rate of inflation is moderate. Castille reminds us that Malta's economy remains re- silient together with a vibrant labour market. Unemploy- ment remains at record lows and well below European av- erages, regardless we cannot tone down the key risks for 2024, particularly those aris- ing from supply disruptions of commodity flows. These result from potential blockades of key shipping routes in the Red Sea and the Suez Canal and any intensifi- cation of Middle East hostil- ities could even tempt Leb- anon to join the fray. Apart from wars and human atroc- ities associated with such troubles, one may rejoice that the advent of A.I and genera- tive powers will give a faster transformation to the indus- trial and professional sectors. On the upside, AI has the potential to significantly enhance productivity in an economy. This will increase nation- al income yet, on the other hand, the question that keeps coming up is whether it will disrupt the labour market to such an extent that jobs will be lost and they will not be readily replaced, thereby causing poverty, unless work- forces are urgently re-skilled. This concerns Labour re- deployment on a scale that does not even account for the changes AI will bring in desk bound jobs, like working on Excel spreadsheets, account- ing, the drafting of letters and reports, regular legal advice and standard correspond- ence. applications. Many ask how secure is ChatBT? The answer is that it is highly secure, using en- cryption and authentication methods to ensure that con- versations are kept private. This makes it ideal for business applications, such as customer service, where sensitive information may be discussed. Additional- ly, ChatBT is designed to be compliant with regulations such as GDPR and HIPAA, ensuring that any data shared is kept secure and private. Most office tasks will be soon replaced by the likes of ChatGPT. This will reduce the re- quired staff size and hence the need to put up tables in back offices and headquar- ters. Another whiz kid is "Ma- chine learning". This is a type of AI, that can automatically adapt with minimal human interference, whilst 'Deep learning' is a subset of ma- chine learning which is based on artificial neural networks that mimic the learning pro- cess of the human brain. In professional offices, let us now get an insight into how AI can transform the tax function for stakeholders in general. Whilst it may be true that some jobs or functions, such as bookkeeping and account- ing, will be taken over by AI, other openings will emerge and fill the gap. Naturally for Malta, there is a Red sign on the horizon that our edu- cation system needs priming up. Logically, any redundant staff, need to be retrained and expeditiously developed to fulfill other tasks. The past economic model of re- cruiting low-skilled TCN's in their thousands need to be complemented by attracting more talent of a higher cali- bre. Again, for higher-level tasks, such as advisory, AI would require machine learn- ing involving an expert (or a panel of experts) who would, gradually and over time, train the machine to output the correct conclusions following an analysis of the information related to the case at issue. Guess what can change in the next five years? Surplus blue-collar workers may be persuaded to work in offices, yet to be realistic there will be few of them. Another pos- itive development according to the finance minister is the upgrading of the Real Estate Investment Trusts (REITs) legislation. This is well es- tablished in Europe but with an enhanced incentive tax legislation, it will soon be launched on the Malta Stock Exchange. Having so many high rental offices and qual- ity residential assets, these can be securitized and enable retail investors to put savings in the development and man- agement of buildings. Many banks have loaned to developers on the basis of expected sales prices and up- market rental income which now looks as a building block for retail investors buying REIT's. Another party stop- per this year is the calming of interest rates. European Central Bank raised interest rates six times during 2023, with the deposit facility in- creasing from 2% at the start of the year to a record of 4% towards the end of Septem- ber 2023. Interest rates were kept un- changed during the final two meetings of the year held in October and December. On the other side of the pond, the Federal Reserve raised the target federal funds rate on four occasions dur- ing the year, with the target range rising to between 5.25% and 5.50% by the end of July 2023 from 4.25% to 4.50% at the start of the year. Interest rates in the US were kept un- changed since July 2023. In summary, focusing on the recent inflation readings across the world these led to a slowdown and everyone hopes major central banks will cut interest rates multi- ple times during the course of 2024.