Malta’s economy shows mixed signals amid record low unemployment and rising inflation

Malta’s economy continues to send out mixed signals, with historically low unemployment and robust tourism figures offset by declining industrial and services production, rising inflation, and a widening trade deficit, according to the Central Bank of Malta’s June 2025 Economic Update.

The bank’s Business Conditions Index (BCI) for May remained moderately above the long-term average but saw a slight dip compared to April, suggesting a tempered pace of economic expansion. Similarly, the European Commission’s Economic Sentiment Indicator fell below its historical mean, dragged down primarily by a sharp deterioration in confidence in the industrial sector.

Confidence and uncertainty indicators diverge

While business sentiment dipped, the Economic Policy Uncertainty (EPU) index showed reduced economic policy uncertainty, helped by easing trade tensions. Employment expectations also improved in May, particularly in retail and services, pushing the Employment Expectations Indicator (EEI) above its long-term average.

Consumer confidence climbed to -0.4, improving across all components, with households reporting a positive assessment of their financial situation over the past year – a first since April 2020.

Inflation edges up

Inflation remains a sticking point. The Harmonised Index of Consumer Prices (HICP) rose to 2.7 per cent in May from 2.6 per cent in April, outpacing the euro area’s 1.9 per cent  rate. Notably, inflation excluding food and energy also stood at 2.7 per cent, indicating broad-based price pressures. The Retail Price Index (RPI) remained unchanged at 2.4 per cent , but showed higher inflation for food and miscellaneous services.

Labour market strengthens

April marked a new record low for unemployment, with the rate dipping to 2.7 per cent , compared to 3.3 per cent a year earlier. Registered unemployment also continued to decline, standing at just over 1,000 persons.

However, while net job engagements in March were higher than a year ago, they declined from February, reflecting a slowdown in labour market churn.

Industrial and services production contract

Industrial production in April declined by 0.2 per cent year-on-year – the first contraction since July 2024 – driven by lower manufacturing output, particularly in rubber, plastic, pharmaceuticals, and beverages. Services production also shrank for the second month in a row, largely due to declines in professional, technical, and real estate activities.

Retail trade, by contrast, edged up 0.3 per cent  year-on-year, and the retail confidence indicator returned to positive territory, buoyed by stronger sales.

Tourism growth

Tourism remained a bright spot. In April, Malta welcomed over 351,000 visitors – a 14.6 per cent  annual increase – who collectively spent €304.3 million, up 23.6 per cent from a year earlier.

Guest nights rose by 19.7 per cent , driven mainly by longer stays in rented accommodation, and per capita expenditure also saw an uptick of 7.8 per cent .

Construction and property sectors expand

Construction activity remained strong, with both commercial and residential permits rising in April. Residential property transactions were also up, with 1,378 promise-of-sale agreements signed and 1,199 final deeds registered in May.

Public finances deteriorate

The Consolidated Fund recorded a deficit of €21 million in April, up from €18.6 million a year earlier. While government revenue rose by 10.3 per cent , higher spending – particularly on programmes, initiatives, and public sector wages – widened the fiscal gap. For the January–April period, the government posted a cumulative deficit of €261.4 million, reversing a surplus from the same period in 2024.

Credit and deposit growth remain strong

Credit to residents held steady with an annual growth rate of 8.5 per cent , with notable gains in household loans and real estate lending. Deposits grew by 8.9 per cent , driven mainly by overnight and time deposits. Despite this, interest rates on new loans and deposits both declined in April.