Central Bank forecasts Malta’s economy to remain resilient despite global uncertainty

Malta’s economy is expected to maintain solid growth over the next three years despite heightened geopolitical uncertainty and the ongoing conflict in the Middle East, according to the Central Bank of Malta’s latest economic projections.

In its June 2026 outlook, the Central Bank forecasts real GDP growth of 3.7 per cent in 2026, 3.6 per cent in 2027, and 3.8 per cent in 2028. While growth projections for 2027 have been revised slightly downward compared to previous forecasts, the bank expects the Maltese economy to remain relatively resilient in the face of external shocks.

The bank noted that although the conflict in the Middle East is creating uncertainty for the global economy, Malta is expected to withstand much of the immediate impact in 2026. However, some delayed effects on economic growth and prices are anticipated to emerge in 2027.

Private consumption is expected to remain the primary driver of economic growth over the forecast period. The Central Bank attributed this partly to recent changes to income tax bands, which are expected to support household spending.

Labour market conditions are also projected to remain strong. Employment growth is forecast to moderate gradually, reaching 2.3 per cent by 2028, while the unemployment rate is expected to remain exceptionally low at around 2.9 per cent throughout the projection horizon.

Meanwhile, wage growth is expected to remain robust, although it is forecast to ease slightly from 4.2 per cent in 2025 to 3.9 per cent by 2028 as labour market pressures gradually moderate.

Inflation expected to remain elevated

The Central Bank expects inflation to rise slightly as a result of higher imported costs linked to the Middle East conflict. Headline inflation, measured through the Harmonised Index of Consumer Prices (HICP), is projected to reach 2.5 per cent in both 2026 and 2027 before easing to 2.2 per cent in 2028.

The bank said that higher imported inflation, particularly in food and goods, is likely to be the main driver behind the increase. However, government measures to maintain fixed energy prices are expected to limit the direct impact of higher global energy costs on domestic consumers.

Compared to its previous forecasts, the Central Bank revised inflation expectations upwards by 0.2 percentage points for 2026 and 2028 and by 0.4 percentage points for 2027.

Public finances expected to improve further

The bank also forecasts a continued improvement in Malta’s public finances over the coming years.

The general government deficit is projected to narrow from 2.2 per cent of GDP in 2025 to 1.9 per cent in 2026, before declining further to 1.7 per cent in 2027 and 1.6 per cent in 2028.

At the same time, the government debt-to-GDP ratio is expected to continue falling, decreasing from 46.4 per cent in 2025 to 46 per cent in 2026 and reaching 44.1 per cent by 2028.

Risks remain tied to Middle East conflict

Despite the positive outlook, the Central Bank warned that risks to economic growth remain tilted to the downside.

According to the report, a prolonged or intensified conflict in the Middle East could weaken foreign demand and negatively affect key sectors such as tourism, aviation and shipping. Disruptions to transport routes through the Strait of Hormuz could also lead to fuel shortages in trading partner countries.

However, the bank noted that Malta could potentially benefit from tourists redirecting travel plans towards safer destinations in the central and western Mediterranean.

Inflation risks, meanwhile, are considered to be tilted to the upside. Higher-than-expected energy prices or wider supply chain disruptions could push inflation above current forecasts, although alternative supply sources could help mitigate some of these pressures.

The Central bank also highlighted fiscal risks, particularly the possibility of higher government spending on energy support measures if commodity prices rise beyond current assumptions. These risks could be partly offset by stronger tax revenue resulting from continued improvements in tax administration.

According to the bank’s baseline projections, Malta is expected to combine resilient economic growth with low unemployment, moderating public debt and a gradual reduction in the fiscal deficit over the 2026–2028 period.