There was also some improvement in the female participation rate, from 35% to 38%. New challenges lie ahead A sense of satisfaction is, therefore, justified. Complacency, however, is not, for much remains to be done. And any further progress will have to be pursued in an external environment that has become even more challenging. In the first place, competition, mainly from Asia, has eliminated any residual advantage in our labour intensive industries, and represents a growing threat even in more capital and knowledge intensive activities. Another worrying development is the increasing prospect of a slowdown in global economic activity, reflected in the recent downward revisions to GDP growth forecasts by leading central banks and multilateral institutions. The full impact of the chain of events set off by the sub-prime mortgage crisis in the United States has yet to be felt, and risks being compounded by the mounting inflationary pressures in commodity markets, especially for oil and agricultural products, with as yet unpredictable consequences. Given the circumstances, while the adoption of the euro will undoubtedly enable Malta to face these challenges from a stronger position than if the convergence process had been slower, the euro alone will not be enough. Against this background, I would be failing in my duty if I did not express concern at the insufficient recognition by public opinion of the risks that the evolving external scenario poses for the Maltese economy and of the need to improve the country’s international competitiveness.
As for the cost of labour, while it is true that since 2004 wages have been growing more in line with productivity, it also the case that not all the loss in competitiveness experienced before 2004 has been reversed. In 2006, in fact, unit labour costs were still 18% higher than in 2000. And although wage growth has been moderate in recent years, it has been even more so elsewhere. Indeed, when compared to those in the euro area, Malta’s relative unit labour costs have risen since 2000. There is little doubt that external competitiveness has deteriorated and that continued wage restraint, therefore, remains an essential ingredient in the recipe for achieving faster export-led growth. Productivity can also be boosted by making education and training systems better attuned to the needs of a competitive economy, by further reducing compliance costs and simplifying administrative procedures, and by improving the quality of the business infrastructure. Together with those suggested above, these measures can make a substantial contribution to strengthening the economy’s capacity to deal successfully with globalization. Lastly but no less importantly, it also needs to be realized that action on all these fronts is essential for preserving a social model that has reduced income inequality and secured wide access to education, health and pensions. Conclusion Mr. President, at this critical juncture in the country’s economic development on the eve of joining the euro area, the national interest calls for a strong sense of realism.