Malta is set to enjoy the strongest economic growth among EU countries this year and next year, even though it will moderate from 2022, according to the autumn forecast of the European Commission, issued on Wednesday.
The commission said the island's GDP growth is expected to reach 4.0% this year from 6.9% in 2022. Growth next year is also projected at 4%. The Budget last month projected a 2024 growth rate of 4.2%.
Private consumption has decelerated slightly due to higher inflation and a slowdown in investment following a surge in aviation sector investment in 2022. Economic growth is forecast to be 4.2% in 2025.
The commission observed that while energy prices are set to remain unchanged until 2025 due to government measures, but inflation is still projected to reach 5.7% this year and then moderate to 3.3% in 2024 and 3.1% in 2025.
The general government deficit is expected to decrease gradually from 5.7% of GDP in 2022, and to stand at 4.1% in 2025. Public debt is forecast to reach 57% of GDP in 2025.
The commission said Malta is expected to maintain a high pace of employment and population growth, a key factor driving the outlook for consumption despite the expected weak recovery in real wages.
Employment increased by 6.2% in 2022 and continued to grow very strongly in the first half of 2023. This increase was fuelled by strong labour demand which increased across all sectors of the economy, both public and private, and was especially strong in tourism and administrative services.
The labour force is set to continue growing at a robust pace in 2024 and 2025 in line with population growth as the country continues to attract foreign workers.
Malta’s unemployment rate fell to 2.9% in 2022 and is expected to fall further to 2.7% in 2023, 2024 and 2025.
As for the EU as a whole, the commission said a robust post-pandemic expansion in 2021 and 2022 has lost momentum. Real GDP contracted very mildly in the fourth quarter of 2022 and barely grew in the first three quarters of this year. A high cost of living took a heavier toll than expected. On the external side, global trade provided little support. Meanwhile, the response of monetary policy to high inflation is working its way through the economy, and fiscal support is partly being phased out.
GDP growth in 2023 is projected at 0.6% in both the EU and the euro area. Going forward, growth is expected to rebound mildly as consumption recovers with rising real wages, investment remains supportive and external demand picks up.