Economist Prof. Edward Scicluna disputes a claim made by the National Statistics Office that in the second quarter of this year “there were increases in output across all sectors” insisting that most of these increases were offset by inflation.
This claim was made in an NSO news release heralding a 2.4 per cent growth in the country’s GDP in the second quarter of 2005.
He also contends that the massive increase of Lm80 million in stocks and inventories, is an indication that Malta might be producing more but it is still unable to sell its produce.
The increase in stocks and inventories was positively reflected in economic growth figures for the second quarter of 2005 but the negative implications of this increase were not explained in the NSO news release.
The massive increase in stocks and inventories to the tune of Lm80 million was revealed last week in The Malta Financial and Business Times.
Contacted by this newspaper, NSO spokesperson Robert Mizzi had explained that this “increase may be an indication of an overall higher stockpiling by the business community.”
Economist Prof. Edward Scicluna contends that a decrease in local consumption and exports accompanied by a rise in stocks and inventories is an indication of the country’s lack of price competitiveness.
“The picture which comes out overall is that although in the aggregate we managed to produce more, we did not manage to sell it, locally or abroad,” Scicluna said.
Prof. Scicluna substantiates this claim by hard facts.
“Exports of both goods and services fell by 5.8 per cent, while local consumption, both private and public, fell by 3 per cent each.”
He notes that instead of boosting exports and local consumption, the increase in output was reflected in an increase in stocks and inventories to the tune of Lm80 million over the same quarter last year.
The logical conclusion of this is that Malta has a serious problem when it comes to price competitiveness.
“To survive economically we need to sell our produce. But to do that our prices need to be competitive. It is increasingly obvious that they are not,” insisted Scicluna.
The news release issued by the National Office of Statistics on the country’s Gross Domestic Product for the second quarter of 2005 also announced that “there were increases in output across all sectors.”
But according to Prof. Scicluna any gains in output in most sectors were offset by an inflation rate of 2.5 per cent.
Prof. Scicluna notes that the sectoral analysis GDP table for the first two quarters of this year do not feature any deflators.
Deflators are the price indexes for the output of each sector of the economy. An inflation rate of 2.5 per cent necessarily has a marked impact on these price indexes.
“So the NSO statement that there were increases in output across all industries cannot be accurately ascertained,” Scicluna said.
In his analysis of the NSO statistics, Scicluna contends that with inflation running at two and a half percent per annum during the second quarter, any sectoral nominal growth under this figure would “a priori qualify as negative real growth.”
Prof. Scicluna contends that when inflation is taken in consideration, the only sectors experiencing real growth during the second quarter were the same ones which had experienced growth in the first quarter namely: quarrying and construction, real estate, banks and financial institutions, and the government itself.
“All the other economic sectors have either regressed or kept the same output as before.”
Scicluna’s interpretation raises the question on why important factors like inflation and the massive increase in inventories where not sufficiently explained and taken in to account in the NSO’s news release.
A fuller explanation might have shown that government’s quest for the Holy Grail of economic recovery is still proving to be elusive.