It would seem, therefore, that no significant growth could  BIS Review 84/2005  1  be expected next year if the underlying pace of economic activity does not accelerate from this year’s level. The increase in Malta’s fuel bill is also roughly equivalent to the narrowing of the fiscal deficit achieved over the past seven years. In the circumstances, it would be foolish to allow the progress made at considerable cost to be blown away by this external shock. An attempt to cushion the increase in the oil price through borrowing may be economically justifiable in terms of sustaining the incipient recovery suggested by recent GDP data. On the other hand, any borrowing would have to be serviced; and, because it would constitute interference with market signals, it could also retard the process of economic adjustment. The only long-term remedy to counteract the effects of higher fuel prices is to expand productivity and output, and therefore incomes. Indeed, the oil price shock is another compelling reason, if one were needed, for redoubling our efforts to energize the economy. … and by a higher dependency ratio due to population ageing. The third challenge is the demographic shift caused by population ageing, such that the ratio of the working age to the dependent population is expected to shrink from almost four- to just over two-toone by the late 2020s. Some effects of this trend are already being felt this year as the first cohorts of the baby-boom generation reach retirement age.
This growth rate, in turn, would still not be sufficient to ensure convergence with the average per capita GDP of the EU twenty years from now. For this latter objective to be achieved, a real growth rate of some 4 per cent would be required. The way forward: a concerted push for faster growth These scenarios underline the urgency of achieving more rapid, sustainable growth. The longer it takes to expand the productive base of the economy, the more onerous the challenge will be. The prospects for a significant recovery in the short term, moreover, are doubtful since oil prices are expected to remain at their current high level, and the dynamic benefits of fiscal consolidation and EU membership are unlikely to exercise a marked impact on growth in the coming months. Growth forecasts for 2006 vary between 1% and 2%. The current economic situation, therefore, requires decisive action designed to produce early results. I, therefore, feel obliged once again to make a strong appeal to all the social partners not to underestimate the threat which today’s realities represent for the wellbeing of their own members, and to cooperate in the search for real, long-term solutions in the national interest. The alternative is a slow, but depressing process of stagnation.