Government consumption added 1.5 percentage points to GDP growth in Q1, Central Bank states

Government consumption added 1.5 percentage points to GDP growth in the first quarter of 2026.

In the first quarter of this year, real GDP rose by 3.9 per cent on an annual basis, with growth being largely driven by domestic demand, the Central Bank of Malta said.

The 3.9 per cent real GDP rise followed a 6.5 per cent increase in the previous quarter, the Central Bank added.

Domestic demand contributed 3.6 percentage points to GDP growth in the first quarter, up from 3 percentage points in the previous quarter.

“The acceleration in domestic demand mainly reflected higher growth in Government consumption which rose by 8.5 per cent, up from 4 per cent in the previous quarter. In the quarter under review, growth was mainly driven by outlays on intermediate consumption within the residential care and health sectors. Overall, Government consumption added 1.5 percentage points to GDP growth,” the Central Bank said.

It said that, at the same time, private consumption expenditure increased by an annual 3.7 per cent, up from 3.4 per cent in the previous quarter. “It added 1.6 percentage points to real GDP growth in the quarter under review.”

The Central Bank added that imports rose by 5.6 per cent, while exports rose by 4.9 per cent on a year earlier. “Nonetheless, when expressed in absolute terms, the increase in exports exceeded that in imports. Consequently, net exports contributed positively to GDP growth, although its impact – at 0.3 percentage points – was less than the 3.4 percentage points registered in the previous quarter.”

The Central Bank said that data based on the output approach show that in the first quarter of 2026, real Gross Value Added rose by 3.7 per cent in annual terms and contributed 3.4 percentage points to GDP growth.

Sectoral data shows that the expansion in output was mainly driven by the sector consisting of wholesale and retail trade, repair of motor vehicles and motorcycles, transportation and storage and services related to accommodation and food service activities.

During the first quarter of 2026, the labour market continued to perform positively with activity and employment rates rising. The unemployment rate increased but remained well below that in the euro area. The labour market remained tight. Indeed, both the number of job vacancies and the vacancy rate increased when compared to the first quarter of 2025. The labour tightness indicator, which is the ratio of the job vacancy rate to the unemployment rate, remained elevated.

The Bank’s Business Conditions Index rose marginally from the preceding quarter, confirming earlier indications that economic activity continued to expand at a pace above its long-run average. The Business Conditions Index is a synthetic indicator, which includes information from a number of economic variables such as the term-structure of interest rates, industrial production, an indicator for the services sector, economic sentiment, tax revenues and private sector credit.

The Central Bank said that during the first quarter of 2026, the labour market continued to perform strongly, with both the activity and employment rates increasing. “According to the Labour Force Survey, employment growth in Malta remained stronger than in the euro area. Although the unemployment rate edged up slightly, it remained well below that in the euro area. Labour market conditions remained tight, as both the number of job vacancies and the vacancy rate increased compared with a year earlier and stood at historically high levels.”

It said that consumer price inflation moderated during the first quarter of 2026. Annual HICP inflation eased to 2.3 per cent in March 2026 from 2.5 per cent in December 2025. This, the Central Bank said, was mostly driven by lower contributions from food. HICP inflation excluding energy and food increased slightly to 2.4 per cent.

“Although headline HICP inflation remained below the euro area average, underlying inflation, as measured by HICP excluding energy and food, stood above that of the euro area.”

In the first quarter of 2026, the general Government registered a larger deficit than in the corresponding period a year earlier.

“On a four-quarter moving sum basis, the deficit-to-GDP ratio increased from the fourth quarter of 2025 and stood broadly in line with the euro area average. Meanwhile, the debt-to-GDP ratio declined from the previous quarter and remained well below the corresponding euro area average.”

During the first quarter of 2026, the Governing Council of the European Central Bank (ECB) kept its key interest rates unchanged. In June, however, the Governing Council raised its key policy rates by 25 basis points in line with its commitment to ensuring that inflation stabilises at its 2 per cent medium-term target, the Central Bank of Malta noted. “The Governing Council stated that with this decision, it remained well positioned to navigate the uncertainty caused by the war in the Middle East.”