The Central Bank’s latest forecast for the Maltese economy is a short- to medium-term assessment of how fiscal and economic indicators will likely evolve in the next two years.
There are few surprises in these latest forecasts that align with what the finance minister and the European Commission have forecasted in recent months. The overall impression from reading the CBM forecasts is that we will see more of the same short-term positive indicators of GDP growth, falling inflation and stable unemployment figures in the next two years.
Put simply, the CBM confirms that in the next two years, the government will manage the economic status quo – more of the same short-term tactics that encourage consumption and growth, mainly achieved thanks to the importation of labour rather than productivity improvements.
Malta’s domestic product is expected to grow by 3.6 per cent in 2025, which, although less than that registered in 2024, is still high compared to the EU member states average. The CBM believes Malta’s economic growth is “largely fuelled by an increase in domestic demand and gradual recovery in private investment”.
The unwavering stance of the government to keep the energy subsidies in place, despite repeated recommendations from the IMF, rating agencies and the European Commission, undoubtedly has helped households absorb the price shocks experienced by other Europeans.
It would be fallacious to believe that any government has a magic wand that it can waive to protect the country from the pressures of global energy market forces forever.
We can only hope that we will one day avoid the sharp shock that will force us to reassess the wisdom of promoting consumption rather than undertake structural economic reforms.
So far, we see little practical evidence that the government is moving away from encouraging frothy, low added-value labour-intensive economic activities to encouraging capital-intensive investment in technology and highly skilled labour.
Our open economy makes us vulnerable to external shocks even more than some other EU member states
The prime minister said that in 2025, his government will be addressing the question of the economy’s increasing dependence on imported third-country labour. These plans must surely be more relevant to our longer-term prosperity than the short-term fiscal indicators of the CBM and other institutions.
The CBM correctly forecasts that since unemployment will remain just above three per cent, wages are expected to grow at a “significantly faster” rate.
The bargaining power of most workers has been considerably limited in recent years as the government adopted a lax labour market policy based on liberal workers’ importation practices.
Hopefully, these policies will be tightened to ensure they address not only overpopulation, but that local skilled workers, including nurses, paramedics, teachers, and engineers, will not have to seek better employment opportunities with enhanced pay in other wealthier European countries.
Despite the upbeat comments of the latest CBM forecast, Malta, like the rest of the EU, is still facing geopolitical tensions beyond our control.
Our open economy makes us vulnerable to external shocks even more than some other EU member states.
It would be wise to prepare for such times so that if geopolitical troubles erupt, we will be ready to absorb some of the shocks without resorting to short-term shock measures.
It is time for economic policymakers to switch away from a status quo-enhancing mindset.
The prime minister must move beyond making rhetorical commitments to concrete action on the ground which shows willingness to diversify our economy.
It is time for tough talk on an action plan to hard-wire reforms in education, economic policy and promoting high quality of life standards.