Malta’s business conditions remain below long-term average as retail activity contracts

Business conditions in Malta remained below their long-term average in September 2026, declining marginally from the previous month, according to the Central Bank of Malta's latest Economic Update.

The Bank's Business Conditions Index (BCI), which measures economic activity against historical trends, indicates that business conditions have remained subdued in recent months, largely reflecting a decline in development permits and a year-on-year increase in unemployment.

The October Economic Update, which primarily examines economic developments in August and September, presents a mixed picture of Malta's economy, with stronger industrial production and tourism expenditure contrasting with weaker retail activity and rising inflation.

Retail activity contracts as industrial production strengthens

Retail activity contracted in August for the first time since April 2025, signalling a slowdown in a sector that had previously maintained positive growth.

Meanwhile, industrial production increased by 5.1 per cent year-on-year in August, accelerating from the 4.0 per cent growth recorded in July.

The energy sector was among the main contributors to this increase, alongside businesses involved in manufacturing machinery and equipment, chemicals, computer and electronic products, and medical and dental instruments.

However, the bank observed that industrial production growth has been volatile in recent months.

Services production also registered more modest growth, increasing by just 0.4 per cent in July following stronger performance throughout much of the year.

Growth in accommodation and food services, real estate, transport, administrative services and information and communication offset a contraction in professional, scientific and technical activities.

Tourism continued to provide support to economic activity, with total tourist expenditure increasing by 14.9 per cent in August compared with the corresponding month in 2025.

The increase reflected higher spending per night stayed and a marginal rise in expenditure per capita, despite a decline in the average length of tourists' stays.

Inflation accelerates to 2.4 per cent

Malta's annual inflation rate, measured through the Harmonised Index of Consumer Prices (HICP), increased from 2.0 per cent in August to 2.4 per cent in September.

According to the Central Bank, the acceleration was primarily driven by higher food and services inflation, particularly in transport and housing-related services.

Higher vegetable prices were the main contributor to the increase in food inflation.

Core inflation, which excludes more volatile components, reached 2.5 per cent.

Meanwhile, inflation measured through the Retail Price Index (RPI) increased to 2.9 per cent, compared with 2.6 per cent in August.

Despite these increases, Malta's overall HICP inflation remained below that of the euro area, partly reflecting unchanged domestic energy prices resulting from Government support measures.

Property market shows signs of moderation

The Central Bank also identified signs of cooling in Malta's property market following a period of particularly strong activity.

Residential development permits declined significantly in September, continuing a downward trend from the elevated levels recorded earlier in 2026.

The Bank noted that residential permits have now broadly returned to their average level over the past five years.

Although permits issued for commercial purposes increased compared with August, both commercial and residential permits remained below their levels in September 2025.

On the demand side, residential final deeds of sale and promise-of-sale agreements also declined on both a monthly and annual basis.

Unemployment remains stable at 3.4 per cent

Malta's seasonally adjusted unemployment rate remained unchanged at 3.4 per cent in August, although it was higher than the rate recorded during the corresponding month last year.

Jobsplus figures show that 1,328 individuals were registered as unemployed, an increase of 301 compared with August 2025.

The Central Bank also observed signs of stabilisation in the labour market, with net employment engagements during the first seven months of 2026 edging down slightly compared with the corresponding period last year.

Meanwhile, consumer confidence continued to strengthen in September, supported by more favourable expectations for the coming year.

The largest improvement was recorded in consumers' expectations regarding major purchases over the next 12 months.