Malta’s gross domestic product (GDP) growth is expected to moderate by the end of 2026, according to the latest Central Bank of Malta estimates.
GDP is expected to grow by 4.4% in 2024, edge down to 3.6% in 2025, and to 3.3% by 2026.
This implies an upward revision in 2024, when compared to the CBM's previous projections, while for 2025 and 2026 the outlook is unchanged. The upward revision is mainly on account of positive revisions in private consumption and net exports in the latest national accounts data release.
While in 2023, growth is expected to have been primarily driven by net exports, domestic demand is envisaged to be the main driver of growth in 2024.
Private consumption growth continues at a brisk pace and private investment, is expected to recover slowly, the CBM said. Net exports are also projected to contribute positively, driven mainly by services exports. Growth in 2025 and 2026 is also expected to be led by domestic demand.
Employment growth is set to moderate in the projection horizon, while wages are expected to pick up in 2024, given high inflation and a tight labour market.
Annual inflation based on the Harmonised Index of Consumer Prices is projected to ease from 5.6% in 2023, to 2.9% in 2024, before reaching 1.9% by 2026.
It is thus foreseen to remain above the Eurosystem price stability objective this year due to lingering indirect effects through the response of wages to recent increases in input costs and profit margins. However, compared to previous projections, inflation has been revised down by 0.1 percentage point throughout the forecast period.
The general government deficit-to-GDP ratio is set to decline throughout the projection horizon. The general government debt-to-GDP ratio is set to increase, and to reach 54.3% by 2026. When compared with the previous projection round, the projected deficit and debt ratios were both revised downwards.
On balance, risks to economic activity are tilted to the downside in 2024, as the ongoing geopolitical tensions could weigh on trade, the Central Bank believes. In particular, disruptions to shipping around the Suez Canal could give rise to some supply bottlenecks or longer waiting times, apart from possible higher costs. Risks are more balanced in the following years.
Risks to inflation
Risks to inflation are also balanced. Upside risks relate mainly to ongoing geopolitical tensions especially disruptions to trade in the Red Sea, as well as the potential impact of Fit-for-55 measures and extreme weather events.
On the other hand, downside risks relate to a stronger pass-through from monetary tightening to domestic financial and real economic conditions, as well as the impact from the government’s measure to curb prices of selected food products in the short term.
On the fiscal side, risks are tilted to the downside from 2024. These mainly reflect the possibility of higher-than-expected outlays on energy support measures, in the event that commodity prices are higher than envisaged.
They also reflect the likelihood of additional expenditure on pensions and public sector wages. These risks are partly offset by the likelihood of a pick-up in the pace of fiscal consolidation in the outer years of the forecast horizon.