Central Bank forecasts stronger economic growth for Malta in 2024, but slower momentum ahead

Malta’s Gross Domestic Product (GDP) is expected to grow by 4.9 per cent in 2024, according to the Central Bank of Malta’s latest forecasts.

Growth is projected to ease to 3.9 per cent in 2025, 3.6 per cent in 2026 and 3.4 per cent in 2027. This implies an upward revision for each year up to 2027 compared with the bank’s previous projection round.

This reflects a carryover from the significant upward revision in past data, especially in 2023 following the benchmark revision to the national accounts.

The growth is expected to be driven by domestic demand, indicating continued rapid growth in private consumption. According to the Central Bank, this will be partly driven by reduction in the income tax burden, as announced during the 2025 Budget, as well as a gradual recovery in private investment following the sharp contraction recorded in 2023.

The contribution of net exports is also expected to be positive but smaller than that of domestic demand.

Employment growth is projected to be moderate, though it will remain at relatively high levels, with the unemployment rate staying close to, but slightly above, three per cent.

The bank foresees wages rising at a significantly faster rate in 2024, partly as a delayed response to past inflation but also because of a tight labour market. Subsequently, they are anticipated to ease slightly due to reduced inflationary pressures.

Annual inflation, based on the Harmonised Index of Consumer Prices (HICP), is projected to drop significantly from 5.6 per cent in 2023 to 2.5 per cent in 2024, before reaching two per cent by 2026.

Compared with previous projections, overall inflation remains unchanged in 2024 and 2026, but it has been revised up by 0.1 percentage point in 2025. The latter arising mainly from wage-sensitive components and the forecasted increase in consumption.

The general government deficit-to-GDP ratio is set to decline from 4.5 per cent in 2023 to 3.9 per cent in 2024, and to narrow further the rest of the forecast horizon. By 2027, the deficit is forecast to reach 2.7 per cent of the GDP.

The forecast deficit-to-GDP ratio is mostly unchanged compared with the bank’s August projections, as a more favourable macroeconomic outlook is counterbalanced by the impact of new measures announced in the 2025 budget.

On the other hand, the government debt-to-GDP ratio is set to increase throughout the forecast horizon, reaching 50.9 per cent by 2027. The ratio has been revised downwards, largely as a result of the national accounts benchmark revision.

Following the publication of the national accounts data for the third quarter of the year, after this projection exercise was concluded, the overall risks to GDP in 2024 and 2025 are to the upside.

Further out, risks to activity are broadly balanced. Downside risks largely emanate from possible adverse trade effects related to geopolitical tensions, higher US tariffs, and the possibility of retaliatory measures. On the other hand, the labour market could exhibit even stronger dynamics than envisaged in this projection round, both in terms of employment and wages.

Risks to inflation are slightly tilted to the upside over the projection horizon. These stem from renewed supply-side bottlenecks that could be triggered by ongoing geopolitical conflicts and shifts in global trade policy.

Furthermore, wage pressures could be stronger than envisaged in the baseline. Moreover, unfavourable weather conditions and some policies supporting the green transition could also push up inflation, although such effects might be temporary. On the downside, imported inflation could fall more rapidly than expected if the global disinflation process proceeds faster than assumed or if policy uncertainty weighs strongly on global demand.

As regards the fiscal position, risks are mostly tilted to the downside (deficit-increasing), mainly reflecting the possibility of slippages in current expenditure, including higher-than-expected outlays on energy support measures, if commodity prices are higher than assumed. They also reflect the likelihood of additional increases in pensions and wages in the outer year. These risks are partly offset by the likelihood of higher-than-expected growth in tax revenue particularly in 2024 due to greater efficiency in tax collection.