The World Bank recently warned major central banks that raising interest rates at the same time to fight inflation could bring the world closer to a global recession. World Bank President David Malpass added that “policymakers need to shift their focus from reducing consumption to boosting output, including efforts to capture additional investment and productivity gains.”
The message is clear: Raising interest rates to combat rising inflation will cause further problems for the global economy, as it will have a drastic impact on growth. The solution lies in productivity growth, in increasing competitiveness through investment to generate more growth, if the global economy is to be able to weather the storm caused by the pandemic and now the war in Ukraine.
Malta is no exception. Our open economy is vulnerable to external shocks and if the global economy goes into recession, this will certainly have a negative impact on our exports and services. This does not mean that we can rest on our laurels and do nothing, on the contrary, we need to do more! The government is in the process of mitigating the impact of energy, gas and fuel prices at the pump. This definitely contributes to our competitiveness with our main trading partners, while helping families to manage their lives.
However, competitiveness is not just about cost control or wage control, as some employers think. Competitiveness also means having products that meet customers’ needs, continuously researching and developing the market, investing and providing good quality products and services. The classic example of how this can be achieved is the German car or white goods industry.