Last Updated on Friday, 13 May, 2022 at 12:07 pm by Andre Camilleri
George M Mangion is a partner in PKF an audit and business advisory firm.
The Maltese economy registered a severe contraction in 2020 with limitations on air traffic, tourism and social activities being mainly to blame for an expected fall in real GDP of around 9%, which came after robust growth of 5.3% in 2019.
This year, Malta’s economy is forecast to expand by 6.01% as net exports return as the main contributor to GDP growth while domestic demand makes a slower but steady contribution. By the end of 2022, the tourism sector is expected to recover close to pre-pandemic levels and international trade should be significantly restored.
The unemployment rate for March 2022 stood at 3.0 per cent, declining by 0.1 percentage points when compared with the previous month and the number of unemployed persons was 8,660, with the unemployed males and the 25 to 74 age group being the major contributors to the overall level of unemployment. Now with a gradual recovery in tourism, one is faced with a shortage of skilled labour including third country individuals who emigrated at the start of Covid restrictions to better jobs overseas.
It comes as no surprise that locals have been waiting for a gradual return to normality. Starting from 11 April 2022, incoming tourists travelling to Malta from a country on the red list will be allowed in with a negative PCR test or a recognised Covid recovery certificate which cannot be older than 180 days.
Apart from this as from the 10 April 2022, a vaccine certificate is no longer needed for persons to attend standing outdoor events, or seated indoor events. The decision to ease further COVID-19 restrictions related to travel continues to be a turning point in the Government’s efforts to drive the Maltese Islands back to normality. Quoting Eurostat signs of recovery at Greece, Spain and Croatia saw the biggest rises in visitors last year, with the number of nights spent at tourist accommodation jumping by more than 70%.
Industry and government officials in Greece are forecasting revenues will reach 80-90% of the record seen in 2019, when 33 million tourists brought in 18 billion euros in revenues, worth a fifth of national output. Both Greece, Malta and Italy are racing to fill job shortages as the pandemic forced workers abroad for better paying jobs or into different sectors with less uncertain prospects.
The island’s seat capacity is hovering at around 86 per cent of pre-pandemic levels and will dip just below 85 per cent in August, according to statistics compiled by the Official Aviation Guide. Trips to Austria, Latvia and Slovakia fell, but by less than 18%. Quoting Phil Seymour, president of IBA Group, a UK-based consultancy and aircraft valuation firm, he said there is a lot of pent-up demand as travellers want to see their families and travel again. As the pandemic subsides, families, friends and business partners around the world are travelling to meet each other.
Chief Executive Carsten Spohr (representing German airlines Lufthansa and Eurowings as well as Swiss, Austrian and Brussels Airlines) recently told a news conference how the world is also coming to realize how important friendly personal contacts are and travelling is an effective way to achieve this. It is encouraging to read about financiers meeting in Dublin, home to the aircraft leasing market.
These cheered surging demand after they themselves in past years were forced to reduce their annual gatherings. Optimism is high that an influx of new money is currently driving the growth of airline capacity. But a tide of new worries from inflation to rising interest rates, environmental pressure and conflict on Europe’s border mean the scale of the recovery is anything but certain. Regrettably, Malta is lagging behind competing Mediterranean tourist destinations in the number of airline seats it can offer visitors during the summer, casting doubts on its ability to stage a full recovery in this vital economic sector.
Again, due to the uncertainty arising from the Ukraine crisis, Europe faces soaring energy costs and rising wages. Malta and most European governments are willing to temporarily counter the resulting ‘heating poverty’ by subsidising energy bills for households. This is obviously a stop-gap measure.
One may be cautious and declare that central banks were too optimistic believing that inflation will come down by itself once the economy settles on a normal, post-pandemic path. Already, in the USA the federal bank has raised interest rates. This will hike the cost of borrowing more aggressively with a purpose to bring inflation down.
The side effects of this monetary policy are possibly to disrupt growth. Moving on the subject of the standoff with Russia over the invasion of Ukraine and other threats of pipeline and payment embargoes has quintupled gas prices in Europe. Back home and the Central Bank of Malta (now run by an ex-finance minister) said that in 2022, domestic demand is expected to be the main driver of growth, reflecting strong growth in private and government consumption.
In conclusion, one hopes that as explained above, a recovery in tourism in the Med will in 2022 usher a new Cornucopia of growth, abundance and wealth. A lot depends on scaling down of the Russian aggressive war to retake parts of Ukraine territory and the eventual rebuilding of the devastation – a result of indiscriminate shelling.