Undoubtedly, in terms of public health and the economy, 2020 was one of the worse years in a century. While businesses are used to working in economic cycles, and to build reserves in good years to compensate for less good ones, nobody could have remotely prepared sufficiently to face the economic upheaval caused by the global pandemic. With movement of people effectively shut down and international supply chains facing widespread disruption, we faced an economic collapse of unprecedented levels.
Thankfully, timely intervention by EU and national public institutions addressed the rapidly deteriorating situation to somehow weather the storm. Initiatives such as the asset purchase programme by the European Central Bank was crucial to calm the markets and provide much needed stability during the peak of the pandemic. Guarantees by the European Commission to the European Investment Bank allowed a strong mobilization of funding to financial intermediaries, to provide much needed liquidity to companies required to access finance to keep afloat. Thanks to the EU’s strong credit rating, the Commission raised funds from international markets at a modest cost, which was passed on to member states in the form of beneficial loans such as through the SURE programme, aimed at preserving local employment by subsidizing salaries. Furthermore, other national measures by Government to delay tax payments and schemes to soften the impact of fixed costs such as salaries, utilities, and rents, or stimulate local demand through vouchers, were felt more directly on the ground.
Further uncertainty at European level last year was created by the prolonged negotiations for a future EU UK partnership agreement as well as for the next programming period of the EU budget and the Recovery and Resilience financial package linked to it.
The uncertainty on the terms by which the EU and the UK, two major economic players on each other’s doorstep, was of major concern, particularly in Malta’s case given the sheer volume of goods and services exchanged annually. Everyone is relieved that a deal was finally reached in the dying days, but while it is comprehensive in trade in goods, it is far less ambitious in services.
Regarding the EU Budget, political issues concerning rule of law provisions to qualify for EU Funding opposed by Poland and Hungary, threatened the agreement that would have delayed the disbursement of the EU funding, which is so desperately needed in the current economic circumstances. Thankfully, the political bickering was overcome.
Will 2021 bring about a rapid recovery taking us back to pre-crisis economic levels or will this take substantially longer? The Commission’s Autumn economic forecast indicated that the euro area economy will contract by 7.8% in 2020, after which it is expected to grow by 4.2% in 2021 and 3% in 2022. Therefore, while positive that we should be bouncing back from the depths of the crisis experienced in 2020, it will take a while longer to reach the pre-crisis level.
The economic recovery will hinge on several factors. Naturally, starting with the speed by which the vaccination process of the population is expedited. Different countries, even within the EU, predict that this will be completed at different times in the year. Many logistical issues related to the dissemination of the vaccine are now being faced from transport of vials, to sufficient care givers to administer the job, to a lack of available needles. These issues must be quickly overcome, and it is key that timelines are kept and brought forward. New vaccines are key to salvaging 2021 and must be prioritized by the EU and the European Medicines Agency.
Key to economic recovery is the efficient and targeted investments by the EU Recovery and Resilience Facility, of which 37% must be dedicated to green and 20% to digitalization investments and reforms. This parallel transformation of the economy will happen whether we adapt to it or not, which makes it a mandatory process to ensure that our country remains competitive. EU member states are expected to provide their draft spending plans to the Commission by April, to which I call on Government to consult with stakeholders as widely as possible, to identify viable projects and ensure that the funding is disbursed in the most cost-effective manner and with a focus on industries that need the support most.
Also, considering the interdependence of the global economy, recovery is undoubtedly linked to how soon international trade regains confidence and picks up the pace. Recent years have been far from stable for international trade, yet indications show that the incoming administration in the United States may be more committed to multilateral dialogue, including reforming the World Trade Organisation, which would ensure more stability, a key condition for trade to flourish. Geo-political tensions will continue to create challenges, and the EU should keep on exerting soft and economic diplomacy to diffuse such tensions where possible.
Finally, recovery will also depend on the business-friendly economic conditions created by EU policy and legislation, which this year will be characterised by a very ambitious European Commission work programme. Environmental sustainability and social rights are European values that we all aspire for, but it must be ensured, particularly during this volatile period, that legislative proposals meet such objectives without undermining economic competitiveness and without adding unproportionally administrative and financial burdens on companies as they strive to exit from survival mode, particularly in some strategic sectors of the economy.
It is therefore up to policy makers and elected representatives to provide the right conditions taking account the factors above. I have no doubt that business will then once again step-in and be the catalyst of change, creating growth and prosperity for all. Only then will the worse be truly behind us.
The Malta Business Bureau is the EU-business advisory and support office of the Malta Chamber of Commerce, Enterprise and Industry, and the Malta Hotels and Restaurants Association. The MBB is a partner of the Enterprise Europe Network.