Malta’s inflation rate expected to drop below three per cent in 2024

Malta’s inflation rate is expected to drop below three per cent in 2024, according to the European Commission’s Spring 2022 Economic Forecast.

Following strong economic growth driven by consumer demand and investment in 2022, Malta’s GDP grew by 6.9 per cent in 2022, beating projections from the Winter forecast. This was coupled better-than-expected recovery in tourism.

In 2023, real GDP growth is expected to slow, but remain robust at 3.9 per cent. The EU Commission believes that this is due to inflation limiting consumer demand, and a moderating post-pandemic surge in tourism. However, figures provided by the Malta International Airport show that Malta may be on track to one of its busiest summers yet.

In 2024, real GDP growth in expected to increase to 4.1 per cent.

Inflation is expected to remain high in 2023 due to increasing prices for imported goods (namely food), tourism services and housing maintenance services. However, in 2024, inflation is projected to slow down to 2.8 per cent as price growth in Malta’s main trade partners moderates.

The Government of Malta is also expected to keep energy prices table in 2023 and 2024, keeping them fixed at 2020 levels through extensive subsidies.

As for the deficit, it is expected to decrease from 5.8 per cent of GDP in 2022, to 5.1 per cent in 2023, and 4.5 per cent in 2024.

This is largely due to falling international energy prices, easing the pressure from the Government’s coffers in keeping energy prices. The net cost of the energy support measures reached 2.5 per cent in 2022 and is projected to decrease to 1.7 per cent in 2023 and 1.5 per cent in 2024.

Deficit developments in 2023 are also affected by the complete phasing out of the COVID-19 emergency measures which amounted to 0.8 per cent.

Furthermore, the expected phasing out of Air Malta’s restructuring costs, and the growth in the Government’s wage bill will remain below nominal GDP growth and are expected to contribute to the reduction of the deficit.

In 2024, the reduction of the deficit is set to be driven by a diminishing impact of energy-related measures, phasing out of the national airline early retirement schemes and an increase of the interest expenditure.

Nevertheless, Government’s debt-to-GDP ratio is set to increase to 54.8 per cent in 2023 and 56.1 per cent in 2024.

With regard to employment, the labour force is expected to continue growing at a strong pace over the next two years, as Malta is expected to continue attracting foreign workers, however not enough, as the EU Commission expects a labour and skills shortage to be the main limiting factors for the Maltese economy.

Tax revenues and social contributions are expected to increase in 2023 and 2024 in light of increasing growth in employment.