Central Bank governor warns energy support comes at a cost

Military conflict in the Middle East will yet again test the resilience of the Maltese economy to global shocks, the Central Bank governor has cautioned. 

Writing in the Central Bank’s annual report for 2025, Alexander Demarco said the bank still expects Malta’s economic growth to remain significantly above that of the euro area, however “high uncertainty” in economic projections exist due to the Middle East conflict.

Demarco said the government’s energy support measures should help reduce the impact of possible rises in foreign inflation.

He cautioned that these measures would require greater restraint on public expenditure for the government to achieve its fiscal targets.

In September 2025, government debt stood at €11.214 billion, an increase of €567 million from its level at the end of 2024. The stock of long-term government bonds increased by €649 million, as new bond issues outweighed the value of the ones paid off.

Finance Minister Clyde Caruana declared in March that the government has a €250 million “war chest” over and above what it currently spends on energy subsidies.

Concerns have been growing over the impact rising energy prices could have on consumers and Malta’s economy.

Demarco said in the annual report that according to the Central Bank’s latest projections, published prior to the Middle East conflict, economic growth is expected to ease when compared to previous years.

Real GDP growth is projected to moderate to 3.7% in 2026, and to stabilise around this rate in the following two years. Employment growth is projected to ease further while the unemployment rate is forecast to edge down marginally to 2.8%.

Inflation is projected to remain contained and decrease marginally to 2.3% in 2026. Demarco cautioned that these forecasts are characterised by high uncertainty due to the impact of the war on international commodity prices.

The annual report shows the construction sector continued to grow last year.

Construction permits for residential units issued by the Planning Authority increased by 41.4% in 2025, fol­lowing a 7.4% rise in 2024.

Permits issued stood at just over 12,300, up from just over 8,700 in the previous year.

The number of permits in 2025 exceeded the historical average of around 7,500 and was close to the number of permits issued in 2018 and 2019, the years when the largest number of permits were approved, the Central Bank report says.

In 2025, permits for apartments accounted for almost nine out of every 10 permits.

The number of development permits for commercial buildings increased by 28.7% in 2025, following an increase of 5.6% in the preceding year.