Room for more robust rebound

WHEN IT comes to the state of the economy, the Government’s narrative has been clear. Part of that narrative goes like this: The worst pains of the pandemic are behind us. The economy has reopened. And the winds are now in our favour. Energy prices are back up.

That, in a nutshell, was the assessment given by Finance Minister Colm Imbert on Friday as he addressed the country on the economy. On Monday, the narrative was continued by Communication Minister Symon De Nobriga when he spoke, as if it were a
fait accompli, of “the recovery of the economy.”

The picture is more complex.

The Central Statistical Office (CSO)’s announcement on Sunday that the economy contracted by four per cent in the first quarter of this year not only contradicts more upbeat assessments, but it also disrupts the assumption that because the economy has reopened, we will immediately return to a situation of robust growth fuelled by more than just international commodity prices.

The CSO’s assessment of gross domestic product (GDP) reflected contractions not only in the energy sector but, crucially, in the non-energy sector as well, which shrank by 5.2 per cent.

It is important to note that the bulk of covid19 restrictions were only lifted after the first quarter of this year, meaning the envisioned boost to economic activity may not be reflected in these latest figures. The nationwide mask mandate was only removed in July.

And the year-on-year GDP level is reportedly on par with 2021 levels.

But of course the transition out of restrictions has been a longer, more gradual process. For instance, borders were reopened last year and some sectors, such as tourism, had been expecting a boost since then.

And the CSO has also said GDP in the last quarter of 2021 was already down by 4.7 per cent, painting a picture of successive periods of contraction.

At the very least this suggests any notion of “recovery” is, for the moment, skin deep.

Put another way, there is room for a more robust rebound, one that is not merely driven by commodity prices, but which is generated by a return to consumer confidence and greater levels of productivity and multi-sectoral activity.

What we can clearly agree with, however, is Mr Imbert’s call for caution going forward.

Yet the expression of that caution cannot be limited to expenditure reduction, plugging leaks in revenue and back-patting when it comes to social grants.

As economist Dr Vaalmiki Arjoon noted this week, the State must investigate the ways in which the rising cost of living has eaten into people’s ability to live, function and work in a vibrant economy.

That economy needs to be supported not just by buoyant energy prices, but from the ground up.