Banks usually lend for longer terms than they borrow so part of this extra profit comes from the difference between long-term and short-term interest rates (i.e. the slope of the yield curve).

If the yield curve is normal, all else equal, a higher slope that the world is now facing means a larger margin for dealers and higher profits for the banking system.

Does this mean that in debt-stricken countries like Greece and Italy, it is prudent to impose a super profits tax on banks? All is fair as governments are pressed with increasing demands from voters to help them face higher cost of living worries. With a local budget in the offing by end of October, unions are voicing their wishes for an untaxed Cola weekly increase.

It is understandable that the government with its own bloated work force cannot but wish to claw back in taxes part of the Cola refund. Other worries include the soaring rate of foodstuff prices. Who can provide a lasting solution to calm traffic congestion which is leading to more road accidents, some fatal.

Millions of euros for new roads were earmarked by Hon Ian Borg, the ex-roads minister but no solution is in sight. In fact, parts of the Marsa junction are still without proper signage and the promised 40 mins savings to drivers using a controversial Central Road in Attard has not materialized.

Affluence has resulted in over 450,000 licensed vehicles (of which only 17,000 are EV or PHEV) and there seems no effort to build a promised underground Metro that was announced amid much razzmatazz before the 2022 elections. Critics note that history is littered with examples of supposedly world-changing technologies that challenged entrepreneurs, only to fail to live up to the promise.

One typical example was riding the Fourth Industrial Revolution curve.  Ebullient announcements from Castille remind us of the excellent rankings expressed by IMF forecasts, DBRS, Fitch all of which placed Malta as “the fastest growing EU economy this year and the next, with the lowest unemployment rate in both years.

In our prime minister’s words despite weakening international conditions, the IMF has revised up its GDP forecast for Malta to 3.8% and sees us as the fastest growing EU economy this year and the next, with the lowest unemployment rate in both years.

Locally, we recall how millions were poured in to advertise Malta as the blockchain island.  Pity so far only a handful of companies registered as the majority settled in Central Europe.

Malta Enterprise should wake up to the notion that we missed the opportunity to automate - as we were made to believe that its main purpose during the two years prior to a general election was to undertake payment of wage supplements to furlough workers.

End of pandemic and the army of TNC’s have been recruited as a means to solve the acute shortage of low-wage workers. Has the formula of importing low-wage migrants (mostly living on minimum wage) help reduce and calm inflation?  Not really, although lately inflation is found to have reduced to 5% from the core rate of 7%.

Again, some food items and most energy are fully State subsidized albeit on a temporary basis. Although local demand factors are encouraging yet export growth is expected to slow down from the high growth rates registered in recent years, in line with the projected moderation in global demand, while imports are expected to rise, driven by investment growth.

The services sector composed of financial services, gaming, tourism and aviation continues to underpin Malta’s current account surplus. In the past, our debt ratio may have hindered us from trying harder to innovate. Yet party apologists rejoice how during L’Aqwa Zmien” the economy showed a buoyancy with some years delivering a surplus. Now, perhaps partly due to the Russian war and post Pandemic the annual surpluses morphed into deficits and this year debt is hitting close to the 60% mark of GDP.

The finance minister tells us that our unemployment rate is low and due to improved demand, we are experiencing worker shortages so pushing us to up our debt limits is a fair price to pay as most of it can be attributed to helping the economy recover from the pandemic.  Notice how the Central Bank headed by an ex-finance minister came out with good tidings in its latest business dialogue.

The rabbit came out of the hat. Rejoice because 47 per cent of firms expect business activity to improve in the short term, marginally higher than 46 per cent in the preceding quarter. Firms report that the pressure of costs has eased considerably due to improved supply chain conditions. 

However, some firms were unable to give a prediction in this regard due to the high level of global uncertainty. Companies expressed concerns about labour and skill shortages and pressures to increase wages without corresponding augment in productivity. Indeed, many firms expect wages this year and next to rise by over five per cent.

The net share of firms planning to increase their staff complement fell by 16 percentage points, to a net 45 per cent. This is a splendid dialogue by CBM which has taken a snap shot of what companies felt this year. One hopes, that the prognosis is doable since exports need more vim to reach the pre Covid highs.

The Economist Intelligence Unit forecasts that the global economy will suffer next year partly due to rising energy prices and two major wars in Ukraine and Israel. 

History has proven two things. First, that in spite of all its disadvantages, the free market is still the market structure that generates most wealth. Second, such disadvantages need to be eliminated through effective regulation and public policies that promote the common good.

Thus, it is up to any government to determine where the balance of power between capital and labour should lie. A laissez-faire attitude where most regulators are run by politically appointed incumbents has always been a malady of our society since Independence. Still let us enjoy A1 appellations.

Author: George Mangion -Senior Partner at PKF Malta
Published on Business Today: 26th October 2023