Gordon Cordina


Gordon Cordina is a leading economist and Executive Director at E-Cubed Consultants Ltd.

The Brexit Prospect

Friday 03rd June 2016

It may come to be but it will not last. With due apologies to John Donne, no country is an island… economically speaking, at the very least. Brexit did not work for the UK economy in the 1970s, and it will be even less productive today, with the strong dependence on economic ties with the European Union developed over decades.
Should Brexit happen, it will be a mistaken response – to a wider global migration phenomenon – whose economic damage will need to be reversed, but only after a painful period of instability for the UK economy and beyond. This is a pity, as the UK has been one of the better performing economies generally in the first half of this decade.

What’s in it for Malta? Certain analysts put Malta as one of the EU countries at most risk from the prospect of Brexit. I cannot fully concur with this. Their opinions are based on a slowdown and potential recession of the UK economy and a consequent depreciation of the pound sterling, leading to a drop in the purchasing power of UK consumers and a decline in the value of investments in the UK. Malta is viewed by these analysts to be particularly exposed to these shocks due to the dependence on the UK market for tourism and the investments in the UK held by financial institutions operating in Malta.

With respect to the latter issue, I do not expect any marked effects on the Maltese economy itself, pretty much for the same reasons that the 2008 financial crisis did not impact the Maltese economy directly through its financial sector. Such institutions operate in relative isolation from the economy, and would in this particular instance be mitigating their risks against a well-identified risk, or not holding their investments in sterling at all in spite of investing in the UK.

With respect to tourism activity, a drop in consumer purchasing power is bound to affect demand generally, but may also entail a shift away from longer haul destinations to ones which are cheaper and more accessible. Malta could actually benefit from such trends, as has already happened in the past. It is also to be considered that most major effective competitors for UK tourists use the euro currency, just like Malta.
As has already happened, Malta could actually benefit substantially from attracting a relatively minor element of business away from the higher-priced and less dynamic UK economy in a time of turmoil. This could be true especially in service areas such as finance and IT.

Balanced against these considerations may adverse effects on Maltese manufacturing exports to the UK, especially in the case of products that are sensitive to changes in income.

Brexit is invariably an economically incorrect reaction to a global political problem. It is to be avoided as the only possible benefits arising out of it will accrue to small sections of the UK and international communities, and will be by far smaller than the costs. Should it materialise, I do not expect major impacts on the Maltese economy, due to a combination of factors which are likely to mitigate adverse risks and create opportunities in certain instances.