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The Central Bank of Malta’s latest Economic Update for January 2025 reveals that business activity in December grew at a pace slightly below its long-term average, as economic sentiment weakened across key sectors.

The report highlights a decline in business confidence, increased uncertainty, and moderating inflation, painting a mixed picture of Malta’s economic outlook.

The Business Conditions Index (BCI), which measures annual business activity growth, indicates that economic expansion was slightly below historical norms in December.

Similarly, the European Commission’s Economic Sentiment Indicator for Malta decreased and fell below its long-term average, reflecting growing uncertainty across industries.

In terms of employment, the Employment Expectations Indicator also declined in December but remained above its historical average, suggesting continued resilience in the job market. The unemployment rate stood at three per cent, unchanged from the previous month and lower than the 3.2 per cent recorded in November 2023, reinforcing Malta’s historically low unemployment levels.

Rising uncertainty in economic policy

For the first time, the Central Bank’s Economic Update includes a brief analysis of the Economic Policy Uncertainty (EPU) Index (developed by CBM researchers late last year), which measures economic and political uncertainty based on news reports. The index stood slightly above its long-term average, reflecting heightened concerns driven by global economic and political developments.

Additionally, the Economic Uncertainty Indicator (EUI) for Malta increased in December compared to November, with the most notable rise in uncertainty observed within the industrial sector.

Industrial production, retail trade, and services

Despite increased uncertainty, Malta’s industrial sector and retail trade performed strongly in November, both expanding at a faster rate compared to October. However, services production in October grew at a more moderate pace compared to the previous year, suggesting a slowdown in certain service-based industries.

Inflation trends and consumer prices

Inflation in Malta continued to decline, bringing some relief to consumers and businesses alike.

The annual inflation rate based on the Harmonised Index of Consumer Prices (HICP) fell to 1.8 per cent in December, down from 2.1 per cent in November. Inflation excluding food and energy stood at two per cent, both well below the euro area average.

Meanwhile, inflation measured by the Retail Price Index (RPI) edged down slightly to 1.2 per cent in December, compared to 1.3 per cent in November, reflecting a steady moderation in price increases.

Real estate and credit trends

In November, residential building permits increased compared to the previous year, while commercial building permits declined. However, December saw a slight dip in promise-of-sale agreements, whereas final property deeds rose compared to the same period in 2023.

Credit to Maltese residents increased at a faster pace, driven by growth in lending to both general Government and other residents.

Similarly, Maltese residents’ deposits grew, supported by higher balances in private non-financial corporations, households, and financial intermediaries outside the insurance and pension sectors.

Government finances: Rising expenditure and deficit

The Government’s Consolidated Fund recorded a deficit of €199 million in November, an increase of €8 million compared to the same period in 2023, as rising public expenditure outpaced revenue growth.

However, for the January-November period, the overall deficit stood at €102.3 million, which was significantly lower than the €346.6 million deficit recorded in 2023, indicating an improvement in Malta’s fiscal position.

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