Malta’s economic growth to slow but remain among Europe’s highest, supported by strong exports

Malta’s economy is forecast to maintain one of Europe’s highest growth rates, even as growth slows in the coming years.

The IMF, in its 2024 Article IV Mission Concluding Statement, projects Malta’s growth will decelerate from 7.5 per cent in 2023 to five per cent in 2024 and four per cent in 2025. Similarly, the Maltese Government anticipates a growth rate of 4.3 per cent in 2025, as outlined in the Malta Budget 2025 economic highlights.

This moderation comes as exports, including tourism, are expected to slow, but remain robust, supported by a modest recovery in Europe. Private consumption growth is anticipated to remain solid, with investment recovering gradually.

Economic outlook: Growth, labour markets, and inflation

The IMF highlighted that Malta’s economic strength is underpinned by its vibrant labour market, with employment growth driven by an influx of foreign workers. The unemployment rate remains at historic lows.

However, the labour market’s tightness has created some inflationary pressures, particularly in services. Inflation, which has already fallen to around 2.25 per cent, is expected to stabilise at two per cent by mid-2025.

Despite these positive indicators, risks to Malta’s economic outlook are tilted to the downside.

The IMF cautioned that global uncertainties, such as conflicts in the Middle East and Ukraine, as well as rising commodity prices, could impact the country’s growth. On the domestic front, higher-than-expected wage growth or inflation could pose challenges.

Fiscal policy: Consolidation and strategic reallocation

The IMF commended Malta’s commitment to fiscal consolidation, with plans to reduce the overall deficit from four per cent of GDP in 2024 to 3.5 per cent in 2025. However, it stressed the need to phase out fixed energy price policies, which currently account for a significant portion of the fiscal deficit.

Shifting to targeted subsidies and market-based pricing mechanisms could free up fiscal resources for public investment in green initiatives, education, and innovation.

Strengthening revenue collection and enhancing expenditure efficiency were also flagged as critical. Measures such as digitalising procurement processes and improving tax administration are essential to achieve these goals.

Safeguarding financial stability

Malta’s financial system remains resilient, with banks holding ample capital and liquidity buffers.

However, the IMF noted potential risks due to banks’ substantial exposure to the real estate sector. It recommended stronger oversight of real estate lending and the implementation of EU regulations to bolster banks’ capital requirements.

Additionally, the IMF highlighted the importance of continued progress in combating money laundering and terrorism financing, particularly through enhanced risk-based monitoring and bolstered regulatory resources.

Structural reforms for long-term growth

The IMF urged Malta to focus on productivity-driven growth by fostering innovation, digitalisation, and education.

Public and private investment in research and development remains low, necessitating further support for start-ups, scale-ups, and digital adoption. The recently launched Malta Venture Capital Fund, while a “step in the right direction”, may require expansion to meet the country’s ambitions.

In education, the IMF recommended greater efforts to address shortages in highly skilled workers, particularly in STEM fields and digital skills. Full implementation of the National Education Strategy and the Lifelong Learning Strategy is critical to preparing Malta’s workforce for future challenges, it added.

Tourism and sustainability

The IMF pointed to the need for better management of the tourism sector, which continues to grow but risks exacerbating labour shortages and infrastructure strain.

Effective implementation of the Malta Tourism Strategy 2021–2030 is essential to ensure sustainable, high-quality tourism that benefits the economy without overburdening resources, it added.

Malta’s economic resilience remains commendable, but the IMF has outlined key areas for policy focus to ensure sustainable, long-term growth.

By prioritising fiscal consolidation, innovation, and structural reforms, Malta can continue to lead Europe in economic performance while addressing emerging challenges.