Malta’s economy faces slower growth as demographic pressures mount

Malta’s economic engine continues to grow, but signs of deceleration are emerging as demographic imbalances and sectoral disparities begin to test the country’s long-term sustainability, according to KPMG’s Malta Economic Outlook – May 2025.

The latest figures show that Malta’s real GDP growth stood at 6.1 per cent in 2024, slightly lower than the 6.8 per cent recorded in 2023. The final quarter of 2024 registered a more notable dip, falling to 2.8 per cent compared to 6.3 per cent in the same period the year before. Projections by the Central Bank of Malta expect this slowdown to continue, with GDP growth forecast to decline to 3.9 per cent in 2025 and ease further to 3.6 per cent by 2026.

While the economy remains broadly resilient, sectoral performance tells a more uneven story. The manufacturing industry posted a modest 4.4 per cent growth in the final quarter of 2024, whereas the wholesale and retail sector saw an 8.8 per cent year-on-year contraction. Construction, which previously experienced positive momentum, slipped into negative territory with a -one per cent growth rate. In contrast, the accommodation and food sector surged by 20.1 per cent, underlining Malta’s continued dependence on tourism.

Consumer confidence and tax reforms

Private consumption is expected to stabilise following a period of post-pandemic exuberance. The Government’s recent tax reforms are anticipated to boost disposable income for the majority of taxpayers. For single individuals, the tax-free threshold was raised from €9,100 to €12,000, while married and parent taxpayers benefited from similar adjustments. These measures are projected to contribute to renewed household spending and support savings levels.

Malta’s inflation rate is also on a downward trajectory, dropping from 2.7 per cent in March 2024 to 2.1 per cent in March 2025. This mirrors eurozone trends and reflects the ongoing impact of Government subsidies, particularly energy price support measures expected to remain in place through 2026. However, the possibility of renewed trade tensions – such as US tariffs on European goods – poses a risk to price stability in the near future.

Labour market and demographic challenges

One of the most critical long-term risks to Malta’s economy is demographic. The population has surged by 32 per cent in the past decade, primarily driven by foreign workers. Meanwhile, Malta’s fertility rate plummeted to 1.06 in 2023 – well below the EU average of 1.46 and the replacement threshold of 2.1. If unaddressed, this trend could shrink the native population dramatically over the next 50 years, putting pressure on the pension system and labour supply.

Unless drastic action is taken to reverse the current declining birth rates, the Maltese native population could be reduced to 240,000 by 2075 – 40 per cent of whom would be pensioners, the report notes, citing Government warnings.

Healthcare and education feeling the strain

The influx of residents is placing significant stress on public services. Malta had roughly one healthcare professional for every 53 residents in 2022 – a reasonable ratio by global standards – but sustaining this level will become more difficult as the population continues to age.

Similarly, Malta’s education system must now cater to a more diverse student body. While the student-teacher ratio remains within acceptable limits (9:1), increased enrolment risks overburdening educators and impacting quality unless further investment is made.

Property market expands but caution emerges

In real estate, the number of residential permits rose by 7.5 per cent in 2024, with final deed values increasing by 8.4 per cent in Q1 2025 over the same period last year. However, advertised property prices have begun to lag behind actual transaction prices, suggesting a potential cooling of expectations among sellers.

Malta’s economic fundamentals remain strong, but the country faces a pivotal moment. Slowing growth, population imbalance, and the strain on infrastructure all signal a need for strategic long-term policymaking.