Silvan Mifsud is director of Advisory at EMCS Tax & Advisory and also a council member of The Malta Chamber
The EU Commission’s summer economic forecast was issued on 11 September. This forecast indicated that a weaker economic growth momentum in the EU is expected to extend to 2024, and the impact of tight monetary policy (increase in interest rates) is set to continue restraining economic activity. Moreover, the overall EU economic growth is being impacted negatively by slowdown in China’s GDP growth to 0.8% q-o-q in Q2-2023, from 2.2% in the first quarter. Household spending in China has remained subdued due to relatively poor labour market outcomes, especially for youth, poor investor confidence and low private sector investment, especially in real estate. This means that the EU economy has lost momentum. Following a mild contraction in the fourth quarter of 2022, EU real GDP grew by 0.2% q-o-q in the first quarter of 2023 and remained flat in the second quarter, meaning that the EU economy grew by only 0.2% in the first half of 2023. This loss of momentum over the first half of the year was underpinned by the lack of a solid growth driver, with weakness both on the external side and among consumers.
Accumulating growth over the first two quarters of 2023 and comparing against the levels of the fourth quarter of 2022, only gross fixed capital formation – mainly equipment investment and government consumption – registered positive, albeit weak, growth in the EU (+0.2% and +0.1%, respectively). Going forward, survey indicators point to worsening EU economic activity in the third quarter of 2023, with continued weakness in industry and fading momentum in services. In August, the Economic Sentiment Indicator (ESI) continued to decline in both the EU and the €o area. The decline was due to lower confidence among consumers as well as services, retail trade and construction managers.
With regards, inbound tourism to Malta, the latest July figures have now been published. The results indicate that when comparing July of this year to July 2019, we see a 7.5% increase in tourist arrivals. On the other hand, the expenditure per tourist per night in July 2019 stood at €118.20 and in July (adjusted for inflation) stood at €115.87. That is a 2% decrease. Taking the full period Jan to July 2019 and the same for 2023, we see the expenditure per tourist per night for Jan-July 2019 stood at €113.64 and in Jan-July 2023 (adjusted for inflation) stood at €113.01. More importantly, however, is when we take the view for the whole period (that is, Jan-July) and see the expenditure per tourist (not per night ) whereby we see that for the period Jan-July 2019 the expenditure per tourist stood at €767.31 and for Jan-July 2023 (after adjusting for inflation) the expenditure per tourist stood at €743.50, resulting in a substantial 3.1% decrease. It seems obvious, that while we are managing to attract more tourists, the average tourist visiting Malta has less spending power when compared to 2019.
Finally, I would like to briefly tackle the ever popular subject of labour productivity. Recently this subject has been gaining momentum as we seem to be realising that we need to change Malta’s economic growth model and have it based on the need on reducing increase in input while still increasing output, that is, by increasing productivity. Comparing the real labour productivity per hour worked of Malta with the EU27 average, it seems that Malta is lacking slightly behind the EU27 average. For the EU27 labour productivity increased gradually over the years, reaching its peak at 106.3 in 2022. This indicates that by 2022, labour productivity in the EU27 had increased to a level that was 6.3% higher than the base year 2015. Similarly, to the EU27, labour productivity in Malta also increased over the years and reached 103.3 in 2022. This indicates that by 2022, labour productivity in Malta had increased to a level that was 3.3% higher than the base year 2015, but less than the labour productivity increase across the EU27, which gives some trend indication with regards Malta’s competitiveness.
If one where to delve deeper and derive the average productivity measure per employee for each sector, one needs to divide the GVA generated from each economic sector by the total number of Full-Time Equivalent (FTE) employees in that sector. If one does this and compares the results obtained for 2013 and 2022, one would see economic sectors like Information & Communication and Manufacturing that registered the largest increases in productivity, while economic sectors like Real Estate activities, Finance & Insurance, Arts & Entertainment and Public Sector registered a decline in productivity.