On May 15, 2024, the European Commission released its most recent macroeconomic forecasting for Malta, which indicated that the country's economy will continue to expand strongly due to both strong exports and strong domestic demand. Returning to well above pre-pandemic levels, tourism flows are driving up domestic demand thanks to a robust worker influx. The Maltese economy is predicted to increase at a rate of 4.6% in 2024 and 4.3% in 2025, following a 5.6% GDP growth in 2023. With the government deficit at 4.9% of GDP in 2023, a gradual decrease is anticipated in 2024 and 2025. The public debt-to-GDP ratio is expected to rise very marginally despite the primary deficit, due to the robust nominal GDP growth.
Robust Nominal GDP Growth
Real GDP growth in 2023 was 5.6%, 1.6 percentage points more than the autumnal projection. Significantly increased immigration and tourism flows led to far greater than anticipated private spending and exports. In addition to extraordinarily high immigration, government policies that have maintained energy prices at 2020 levels and a low monetary policy spillover to retail interest rates continue to support Malta's economy.
In 2023, tourism returned to pre-pandemic levels. In the first two months of 2024, there was a more than 26% increase in tourist numbers, despite a slightly slower growth in tourism expenditure. Exports of technology, entertainment, professional, and financial services are also expected to rise rapidly.
Following a steep decline in 2023, construction investment is predicted to stabilise and rebound moderately, increasing by 2.5% in 2024 and 3.9% in 2025. It is anticipated that rising private consumption and activity in the service sector will result in increased imports of both commodities and services. All things considered, the GDP growth estimate was revised upward to 4.6% in 2024 and 4.3% in 2025.
Increased Labour Demand
With a 6.5% increase in employment in 2023, Malta's labour market outperformed forecasts. As long as the nation continues to draw in foreign workforce, employment growth is predicted to be robust at 4% in 2024 and 2025. The primary challenges impeding the Maltese economy continue to be identified as a lack of labour and skilled labour.
An updated demographic study in 2022 resulted in an increased revision of the unemployment rate from 2.9% to 3.5%. The unemployment rate dropped to 3.1% in 2023, and it is predicted to slightly decline to 3% in 2024 and 2.9% in 2025. However, when employment increased in low-paying sectors in 2023, nominal salaries continued to grow at relatively moderate rates, leading to negative real wage growth per head.
Inflation Declining
Notwithstanding government assistance to maintain energy costs at 2020 levels, HICP inflation in 2023 reached 5.6%. The Maltese government reaffirmed that in 2024 and 2025, they would keep energy inflation under control. Malta's inflation decreased in the first quarter of 2024, primarily as a result of decreased inflation in services. Food costs are predicted to continue to rise at the quickest rate in 2024 and 2025, accounting for 2.8% and 2.3% of headline inflation, respectively.
The reduction of subsidies, which included steps to lessen the effects of rising energy prices, and the restructuring costs incurred by the national airline were the primary causes of the general government deficit's decline to 4.9% of GDP in 2023 from 5.5% in 2022.
The Deficit Forecast
The deficit is projected to decline even further in 2024, at 4.3% of GDP. The primary determinants of the deficit's decrease are the public wage bill and the moderate increase in intermediate consumer expenditure. Another factor that should help reduce the deficit is the gradual elimination of the national airline's restructuring expenses. As a result of the expansion of targeted income support and changes in oil prices, which are linked to the price of petrol imports, it is anticipated that the net budgetary cost of measures to reduce the impact of high energy prices will increase to 2.0% of GDP in 2024 from 1.7% in 2023.
With policies remaining the same, the deficit is predicted to decrease even further to 3.9% of GDP in 2025. This decrease is mostly due to the anticipated 1% GDP reduction in measures intended to offset the impact of high energy prices, which is being driven by the reduction of targeted income support and the decline in oil prices.
For detailed information please refer to the European Commission Economic Forecast for Malta 2024.
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