New economic cycle and family businesses

Silvan Mifsud is director of Advisory at EMCS Tax & Advisory and also a council member of The Malta Chamber

The latest Q2 2023 GDP figures seem to indicate that Malta is now entering a new economic cycle. First of all, if one were to have a general overview and compare the overall GDP growth rate in Q1 & Q2 2022 to Q1 & Q2 2023, from a volume perspective, you would see that when combining both quarters, we have gone from a 9% GDP growth in Q1 & Q2 2022 to 4.4% GDP growth in Q1 & Q2 2023.

However, it is more interesting to identify what is fuelling all this. When combining Q1 & Q2 2022, one can see that the economic sectors that were fuelling mostly economic growth were the ones related to Wholesale & Retail Trade and Accommodation & Food Services (+41%) followed by Information & Communication (+16%). This clearly indicates that in 2022, GDP growth was mainly fuelled by a strong increase in private final consumption. This is understandable as many locals and tourists were spending their accumulated savings during the pandemic.

However, things are different when looking at Q1 & Q2 2023. The economic sectors experiencing the highest growth in the first half of 2023 were the Manufacturing sector (+17%), followed by Finance & Insurance (+14%). This means that in 2023 we are seeing a change in the economic sectors that are mostly fuelling GDP growth, with the economic sectors that are focused on exports taking the lead, while internal private final consumption will likely be growing at a much slower pace, likely also as a result of the inflationary period we are going through.

The expenditure side of GDP also indicates that the Gross Capital formation is experiencing negative growth, likely meaning that investments in property and construction is now decelerating quite rapidly.

What does this all mean? It basically means that businesses have to learn how to adapt to this changing economy. Those businesses that depend on internal spending need to adapt accordingly as demand for their products and services is likely to dampen. In the meantime, export-oriented products (manufacturing) and services are likely to find it easier to attract the best talent from the labour market and also to lead Malta’s economic growth. Having said this, it is of pivotal importance that family businesses, that constitute the large majority of business in Malta, shape up and become more professional in their approach in this changing economy. While during the past 10 years, any business, irrespective of how good or bad it was managed, tended to succeed, the new economic cycle we are entering into imposes the need for well-oiled internal organisational structures, a future looking business strategy, access to all relevant internal and external data in a timely manner, a data driven and proactive working culture and a robust system of corporate governance in order to succeed. This is why we, at EMCS Academy, together with the Malta Chamber and the Family Business office, have launched a fully accredited course, the first of its kind, entitled Award in Leading a Family Business. This course is specifically set up to help family businesses become more professional in their approach and be better equipped to face challenges. Further information on this course can be viewed on https://emcsacademy.com/courses/award-in-leading-a-family-business/