The slowdown in the construction sector has entered its second year, shrinking by 14% in the first three months of 2023 compared to the same period last year, according to an economic report by audit firm KPMG.

This trend has now persisted for a year and a half. KPMG notes that this is the sixth consecutive quarter that shrinkage in the sector’s gross value added has been recorded compared to the same period a year earlier.

Specifically, the report states that the construction of buildings – “by far the largest sub-segment of the construction industry” – has shrunk by 12.5% while specialised services, such as demolition and utility works, have declined by nearly 16%.

Civil engineering, the sector’s smallest sub-segment, has taken an even greater hit, shrinking by 16.5%. According to KPMG, this is “largely attributable to the drop in government expenditure on the construction of roads over the past two years”.

On the other hand, the accommodation and food service industry has grown by some 44% over the last year, as the tourism sector got back into full swing following years of pandemic-related slowdown.

And the manufacturing sector has seen an almost 14% increase since the first quarter of last year, with pharmaceutical, printing and recorded media firms performing particularly well. Companies manufacturing electronics and clothing also recorded higher production than in previous years.

Inflation to decline, GDP growth to slow down

KPMG forecasts that inflation will slow down over the coming years, dipping from 5.3% this year to 2.3% by 2025.

Meanwhile, the report notes that Malta’s current inflation rate is no longer significantly lower than that of the rest of Europe. The government’s decision to subsidise energy costs had kept Malta’s inflation lower than most other EU countries throughout much of the past two years.

Malta’s GDP growth is also expected to slow down, dipping from 6.9% in 2022 to 4% this year and 3.7% in 2025.  The report finds that Malta’s foreign workforce has changed dramatically over the past few years, now growing to a total of nearly 97,000 workers, just over a third of Malta’s entire workforce.

Almost two-thirds of foreign workers, 63%, are now third-country nationals, whilst 34% are EU nationals.

This marks a drastic change since 2019, when EU nationals made up over half of Malta’s foreign workforce. However, KPMG notes, the number of EU nationals in the workforce decreased by over 3,000 between 2019 and 2021, while that of third-country nationals grew by over 12,500 during the same period.

KPMG also points to a difference in the types of jobs held by EU and third-country nationals, with the former mostly employed as clerks, support workers or professionals, while the latter tend to hold elementary jobs or services.