Malta’s economy sustains steady growth as inflation dips and employment remains strong

Malta’s economy continued to expand on multiple fronts through late summer, with improving business sentiment, faster retail and industrial activity, and a historically low unemployment rate offset by pockets of uncertainty and softer bank credit momentum.

The latest Economic Update from the Central Bank of Malta (CBM) points to annual growth conditions that are stronger than average, even as inflation cools and the public finances post a sizeable monthly surplus.

Growth conditions and sentiment

The CBM’s Business Conditions Index indicates that in September the pace of annual activity strengthened from August and remained above its long-term average (series since January 2000). The improvement was driven by a stronger Economic Sentiment Indicator and firmer residential building permits.

Survey data were notably buoyant. Malta’s European Commission Economic Sentiment Indicator rose to 114.4 in September (from 103.7 in August and 85.7 a year earlier), with the sharpest gains coming from services and construction. Employment expectations also leapt, with the EEI climbing to 115.1. At the same time, the Bank’s Economic Policy Uncertainty gauge edged down to 109.3 in September (from 112.7), remaining above its historical average amid local industrial action and pre-Budget debate.

Activity: industry, services and retail accelerate

Hard data corroborate the survey improvements. In August, industrial production rose 4.8 per cent year-on-year (from 3.3 per cent in July), led by manufacturing – particularly motor vehicles, electronics, wood products, repairs/installation, fabricated metal and food – while energy output fell 8.8 per cent. Retail trade volumes accelerated to +9.2 per cent year-on-year (from +3.9 per cent). In July, services production expanded 3.5 per cent year-on-year, the first increase since February, as real estate, transport/storage, and administrative support led the gains.

Tourism remained a bright spot: 470,643 inbound tourists in August (+11.5 per cent), guest nights up 10.5 per cent, and total spending up 15.0 per cent; per-capita spend rose 3.1 per cent as higher outlay per night offset a slightly shorter average stay.

Property and trade

Development momentum was mixed. 126 commercial building permits were issued in August (virtually unchanged year-on-year), while 1,100 new residential permits were issued, +301 versus August 2024. September transaction data were firmer: 1,099 final deeds of sale (+90 year-on-year) and 1,064 promise-of-sale agreements (+20).

On the external front, the merchandise trade deficit narrowed sharply to €326.8 million in August (from €881.1 million a year earlier), primarily on lower imports. Stripping out fuels, aircraft and sea vessels, the deficit stood at €182.6 million, with exports marginally higher and imports lower – especially electrical machinery and fish/crustaceans – partly offset by higher imports of organic chemicals, pharma, and machinery.

Record-low unemployment

Labour demand remained robust. Net engagements in July totalled 7,019 (up from 3,105 in June, but below 7,744 a year earlier) as engagements stayed above recent averages and terminations below. The Jobsplus register counted 1,027 unemployed persons in August (up slightly from July, down year-on-year). Eurostat’s seasonally adjusted unemployment rate held at a historic low of 2.9 per cent for the fourth consecutive month, down from 3.1 per cent in August 2024.

Prices: inflation cools further

Headline HICP inflation eased to 2.4 per cent in September (from 2.7 per cent), with unprocessed food decelerating to 3.7 per cent on lower fruit and vegetable inflation, services down to 3.0 per cent – largely transport-related – and non-energy industrial goods edging down to 1.1 per cent. Energy inflation remained frozen by government measures. Malta’s overall HICP was 0.2 percentage points above the euro area’s 2.2 per cent, but core ex-food/energy in Malta (2.3 per cent) was 0.1 pp below the euro area. RPI inflation also stood at 2.4 per cent, with food at 3.9 per cent, transport/communication at 1.2 per cent, and energy at zero per cent.

Public finance and debt

The Consolidated Fund recorded a €314.6 million surplus in August, up €276.3 million year-on-year, as revenue surged €151.9 million (+21.1 per cent) and expenditure fell €124.3 million (–18.2 per cent). VAT was the standout line (receipts +€131.4 million), while non-tax revenue rose on higher grants; direct taxes fell on lower household income tax and social security contributions. On the spending side, recurrent outlays fell – especially contributions to entities (–€52.4 million) and programmes/initiatives (–€48.8 million), the latter reflecting Air Malta wind-down base effects – while capital expenditure dropped €26.0 million on timing of EU-related payments. The primary surplus reached €339.0 million. Year-to-date (Jan–Aug), however, the Fund shows a €203.4 million deficit versus a €98.6 million surplus a year earlier, as expenditure (+9.6 per cent) outpaced revenue (+2.8 per cent).

Government debt totalled €11,138.2 million in August (down €24.2 million from July), mainly due to lower outstanding Treasury bills.

Banking

Broad money (M3) held by residents grew 7.5 per cent year-on-year to August (from 8.2 per cent in July). Overnight deposits – now 88.3 per cent of M3 – rose 8.7 per cent, reflecting ECB rate cuts earlier in the year making time deposits less compelling, amid limited pass-through to local retail rates. By contrast, time deposits up to two years fell 0.9 per cent, the first decline in more than two years.

Overall credit to Maltese residents grew 8.7 per cent year-on-year in August (from 9.5 per cent), with lending to general government up 11.4 per cent and lending outside general government up 7.8 per cent. Household lending growth held at 9.1 per cent, mirroring mortgages; consumer and other lending ticked up to 9.8 per cent. Loans to non-financial corporates increased 6.4 per cent in the year to June, led by accommodation and food services, with smaller gains in construction/real estate, wholesale/retail, and ICT/transport/storage; lending to energy and (to a lesser extent) manufacturing contracted.

Bottom line

The late-summer picture is one of resilient internal demand and services strength, supportive tourism flows, and tight labour markets, against a backdrop of easing inflation and disciplined August public finances. Bank data suggest more liquid deposit preferences and moderating credit growth, while capital-market yields remain well below their 2023 peaks even after a modest year-on-year rise. With the Update’s cut-off on 17 October 2025, the next releases will show whether momentum in services and retail can carry into the final quarter while inflation stays on a disinflationary path.