These are the correction of macroeconomic imbalances, which I have often characterized as the need to live within our means; the need to respond to, and exploit the competitive forces unleashed by globalization; and the deleterious economic effects of population ageing and of environmental degradation. These challenges are by no means unique to Malta. Economies all over the world at different stages of development are similarly affected. They can, and must, therefore, be transformed into opportunities, because economies which are more successful than others in overcoming them will enjoy a significant competitive advantage. In Malta’s case the task is particularly difficult because all of these issues need to be tackled at the same time. Indeed, undue postponement of the necessary reforms could have serious consequences. The Correction of Macroeconomic Imbalances The Maltese economy has been devoting far too many of its relatively scarce resources to consumption. Household and government consumption have increased steadily over the past decade from 80% to 85% of GDP. The household savings rate has meanwhile declined from almost 16% to around 1.5% of disposable income during the same period. These trends are a source of concern. First, because a reduced savings pool will compromise future economic growth by curtailing investment. Indeed, the share of resources devoted to productive investment has shrunk from almost 30% a decade ago to just over 20% today. Second, because excessive consumption threatens the sustainability of the economy given the high import content of  BIS Review 50/2003  1  domestic expenditures.
In our latest assessment this was based on the belief that inflation was somewhat higher than now proves to be the case. But monetary policy does not have such a degree of precision that it can control inflation to a tenth of a degree. And, moreover, inflation in July was high and far above the inflation target even after the downward revision of the figure. In the discussion ahead of the interest rate decision, I and other members of the Executive Board highlighted the weak labour market indicators which uniformly pointed to a weaker development of employment, which is also in line with the Riksbank's forecast. After the decision, the Labour Force Survey for August has been presented. This shows that employment increased by a moderate 0.5 per cent on a 12-month basis, which is marginally lower than the Riksbank's forecast. At our September meeting, we had access to the initial version of the National Accounts for the second quarter. These showed that GDP did not increase at all compared to the previous quarter and increased by only 0.7 per cent on a calendar-adjusted12-month basis. Now that the revised version of the National Accounts has been published, we can see that growth in the first two quarters has been marginally adjusted downwards in both cases. This means that growth in the first quarter was 2 per cent on a 12-month basis and with calendar effects taken into account. The corresponding figure for the second quarter was 0.6 per cent.