The Central Bank has taken a bullish stance towards Malta’s economy, revising its GDP growth forecasts upwards and saying overall risks to economic growth in 2024 and 2025 are tilted to the upside.
According to the Bank's latest forecasts, Malta's gross domestic product (GDP) is expected to grow by 4.9% in 2024, 3.6% in 2025 and 2026 and 3.4% in 2027. This implies an upward revision for each year up to 2026 when compared to the Bank's previous projection round.
The bank said its upward revision largely reflected the knock-on effect of an upward revision in past data, especially for 2023 following a benchmark revision in national accounts.
It expects Malta’s economic growth to be largely fuelled by an increase in domestic demand and gradual recovery in private investment. Net exports will also contribute to growth, though less than domestic demand, the bank said.
Unemployment will remain just above 3%, the bank predicts, and that tight labour market will help drive wages up.
The Central Bank expects wages to grow at a “significantly faster” rate in 2024, in part because of the tighter labour market as well as a delayed response to past inflation.
Inflation is expected to keep dropping to reach 2% by 2026, though the bank expects inflation in 2025 to be 0.1 percentage points higher than previously predicted.
The government deficit is expected to drop from 4.5% in 2023 to 3.9% in 2024, and to continue shrinking in subsequent years to reach 2.7% by 2027.
Government debt will rise to 50.9% of GDP by 2027, the bank expects – a slight decrease from previous projections, in large part due to the revised GDP growth forecasts.
The bank said that overall risks for GDP in 2024 and 2025 are to the upside, with a similar expectation for the labour market. Both employment and wages could do better than forecast, the bank said.
Risks to activity are broadly balanced, it said, with geopolitical tensions, higher US tariffs and a potential trade war all presenting downside risks.
Inflation risks are also slightly tilted to the upside, the bank said: geopolitical and global trade issues could all create supply-side bottlenecks that fuel inflation, wage pressures could be stronger than expected and unfavourable weather conditions, as well as some policies supporting the green transition, could also push up inflation, although the bank said such effects might be temporary.
On the downside, imported inflation could fall more rapidly than expected if the global disinflation process proceeds faster than assumed or if policy uncertainty weighs strongly on global demand.
In terms of public finances, the bank said the risks are mostly about Malta missing its deficit projections as the government could end up spending more than expected on energy subsidies, pensions and wages. Those risks are offset by the potential of tax income being higher than projected due to increased efficiency in tax collection.