Looking back at 2022 | From COVID to war: How hope mixed with despair

Only one year ago, preparations were underway to start vaccinating children during the Christmas holidays, while booster shots were being offered to adults.

The new COVID-19 variant was wreaking havoc once again and restrictions were in place to limit the spread but it was also a time for hope.

The renewed vaccination efforts, including among children, would set the pace for a gradual lifting of restrictions throughout the first six months of 2022.

Details of the exit strategy would be given by Health Minister Chris Fearne at the start of February, promising a return to normality by May.

But what started as a year full of promise and hope, soon turned sour by the end of February when Russia embarked on a full-scale invasion of Ukraine.

A war in the heart of Europe, rocked markets, disrupted economies and created uncertainty among people. The war also exposed Europe’s dangerous dependency on Russian gas.

The dual impact of EU-imposed sanctions on Russian energy products and Russia’s decision to weaponise gas supplies by restricting flow, caused energy prices to soar.

And with Russia and Ukraine both being major global grain suppliers, the price of this staple food product also shot up. The spectre of runaway inflation overshadowed any notion of a smooth post-COVID economic recovery.

Energy subsidies

Malta was not immune to all this but a government decision to cushion the impact of fuel and electricity price increases ensured that consumers kept paying stable prices.

The outlay on energy, fuel and grain subsidies cost public coffers more than €400 million in 2022 and the continued support in 2023 is expected to cost a further €600 million.

Over two years, Malta would have spent €1 billion on subsidies and yet finance ministry forecasts show that the debt-to-GDP levels are set to remain in line with the EU’s stability and growth pact.

Debt is expected to go upwards of 60% in 2024 and even then, by a mere 0.3 percentage points, putting Malta in a much better position than most other euro zone countries despite the hefty expense on subsidies.

The ministry forecasts that 2022 will end with a debt-to-GDP level of 57%, and is set to go up to 59.1% next year. By 2024 it will reach 60.3%, and will dip back down to 60% in 2025.

Malta’s real GDP growth in coming years is set to hover between 3.5% and 3.8% and will remain above the EU average.

Budget forecasts show that real GDP growth will fall to 3.5% next year, after standing at 6% in 2022. In 2024, it will rise to 4.3%, and fall back to 3.8% in 2025.

The economic headline figures for Malta look brighter than most in the EU but inflation caused by rising food prices and the cost of services will remain a big headache for households. Pockets were squeezed in 2022 and will continue being squeezed next year.

From supply chain disruptions to war-fuelled inflation

Inflation started rearing its head before the Ukraine war, fuelled by supply chain disruptions as a result of the pandemic. A lack of containers, restrictions in Chinese ports impacted by quarantine and isolation rules, a lack of production caused by COVID-era closures, contributed to supply side restrictions at a time when consumer demand was growing.

This caused prices to start rising towards the end of 2021 and into the start of 2022. The Harmonised Index of Consumer Prices published by the National Statistics Office shows that the annual rate of inflation increased from 1.4% in October 2021 to 2.6% in December that year.

By January 2022, inflation rose to 4.1% with the upward trajectory taking a sharp turn up in April as the full impact of the Ukraine war started to be felt.

From 5.4% in April, annual inflation reached a peak of 7.4% in September and October. It moderated to 7.2% in November but the Christmas period was still expected to be more expensive than previous years.

Shielded from the high energy and fuel prices afflicting other European countries, Maltese consumers have had to contend with higher foodstuff prices, particularly higher increases in refined oils, vegetables, sugar and pasta.

If one were to exclude the energy component from inflation statistics, Malta’s inflation would be higher than the EU average. The squeeze on pockets was not just a perception and the cost of living has returned as a main subject of concern for consumers.

A MaltaToday survey in October found that 80.7% of people identified higher prices as the main impact the war in Ukraine has had on them, followed by 9.6% who said fear of getting involved in the war was the principle impact.

But the same survey found that a relative majority of Maltese (44.7%) felt the situation in Malta was better than other countries, while 30.1% felt it was the same, indicating a general sense of positivity.

Re-drawn alliances

The stability in energy and fuel prices has largely contributed to peace of mind on the domestic front but within the EU context, the Ukraine war has destabilised the energy sector.

Large countries scrambled to ensure enough gas reserves are built for the winter months as Germany restarted coal-fired plants to make up for the shortages and other countries stepped up efforts to build liquefied natural gas terminals to bypass the need for pipeline gas from Russia.

The EU has also had to redraw alliances, seeking gas and LNG supply agreements with Qatar, Azerbaijan, Egypt and Algeria in a bid to wean itself off Russian gas and diversify its portfolio.

Malta’s LNG terminal at Marsaxlokk proved to be a blessing in disguise, ensuring the island could bank on a steady supply of gas, albeit the higher international prices. But the turmoil on the continent also saw the price of electricity imported via the interconnector soar.

A gas price cap agreed by EU energy ministers earlier this month is expected to shield consumers from rising energy prices.

Under the market correction mechanism, prices will be capped at €180 per megawatt hour if the level is exceeded for three days in a row.

The deal will benefit Malta even though government has committed itself to continue shielding households and businesses from higher energy prices.

Energy Minister Miriam Dalli described the deal as “necessary” for Malta given its unique reliance on gas for energy production. But the cap will also result in manageable energy prices on the European continent, where Malta imports its electricity from.

Maltese consumers were bubble-wrapped against high energy and fuel prices but this does not mean the squeeze in other sectors will not be felt.

The outgoing year has been one full of hope and despair. The new year is unlikely to be any different from the current standpoint with no sign of how the war in Ukraine will pan out.

A renewed Russian offensive in February will likely intensify world troubles but just like 2022 has taught us: we always have to expect the unexpected and Vladimir Putin may one morning wake up and reverse his megalomaniac plans.