Malta’s GDP to expand by 4.4% in 2024, followed by slower growth & rising debt by 2026 – Central Bank

Malta’s economy is set to grow by 4.4 per cent in 2024, according to the latest forecasts from the Central Bank of Malta. However, this growth is expected to moderate over the following years, with GDP growth projected to slow to 3.5 per cent in 2025 and 3.4 per cent in 2026. These figures represent a slight upward revision for 2024 and a marginal downward adjustment for 2026 compared to previous forecasts.

The growth is anticipated to be driven primarily by domestic demand, underpinned by continued strong private consumption and a gradual recovery in private investment. While net exports are also expected to contribute positively, their impact is projected to decrease over time.

Employment growth, although moderating from high levels, is expected to remain robust, with the unemployment rate hovering around three per cent throughout the forecast period. The average wage is predicted to rise significantly in 2024, driven by previous inflationary pressures and a tight labour market, before easing in the subsequent years as inflation continues to moderate.

Inflation, as measured by the Harmonised Index of Consumer Prices, is forecast to drop sharply from 5.6 per cent in 2023 to 2.5 per cent in 2024, and to decline further to 2.0 per cent by 2026. The Bank has revised its inflation forecast upwards by 0.1 percentage point for each year within the projection horizon, reflecting recent trends and a reassessment of services inflation.

On the fiscal front, the general government deficit-to-GDP ratio is expected to narrow from 4.1 per cent in 2024 to 3.1 per cent by 2026. However, the general government debt-to-GDP ratio is projected to increase throughout the period, reaching 54.1 per cent by 2026. These fiscal projections remain largely unchanged from the previous round.

The Bank also cautioned that the upcoming national accounts publication, which will include a benchmark revision, could lead to significant revisions to past data, potentially affecting these projections. Additionally, the forecasts could be adjusted once updated fiscal plans from the Government are released later this year in compliance with new EU fiscal rules.

In terms of risks, the Bank sees the overall risks to economic activity as broadly balanced. Geopolitical tensions could negatively impact trade, while a stronger-than-expected labour market could boost private consumption and, consequently, output growth. Risks to inflation are also balanced, with potential upside risks from supply-side bottlenecks and wage pressures, and downside risks from a faster-than-expected global disinflation process.

Fiscal risks, however, are tilted towards a potential increase in the deficit. These risks include higher-than-expected current expenditure, particularly on energy support measures, as well as possible additional increases in pensions and public wages. The Bank notes that if these risks materialise, they could be partially offset by further fiscal consolidation efforts to meet EU fiscal requirements.