Deficit to Narrow, Debt to Peak in 2026, Central Bank Forecasts

According to the latest forecasts issued by the Central Bank of Malta, Malta’s real GDP growth is expected to remain steady at 3.7% annually over the 2026–2028 period, unchanged from the Bank’s previous projections. Economic expansion is set to be primarily driven by robust private consumption, supported in part by recent adjustments to income tax bands. Net exports are also anticipated to make a positive contribution, largely on the back of services trade, although their impact is projected to be more modest than that of domestic demand.

Employment growth is expected to gradually slow, reaching 2.3% by 2028, while the unemployment rate is forecast to decline further to 2.8% from this year’s level. Although wage growth is projected to remain firm, it is expected to moderate over time as labour market pressures ease.

Headline HICP inflation is forecast at 2.3% in 2026, mainly reflecting lower services inflation. Inflation is then projected to ease to 2.1% in 2027 and 2.0% in 2028, with underlying inflation (excluding energy and food) declining to 1.9% by the end of the period. Compared with earlier forecasts, overall inflation projections remain broadly unchanged.

On the fiscal front, the general government deficit-to-GDP ratio is expected to narrow progressively, falling from an estimated 3.0% in 2025 to 2.0% by 2028. Public debt is projected to peak at 47.1% of GDP in 2026 before declining to 46.2% in 2028. Deficit projections have been marginally revised down compared with December estimates.

Risks to economic activity are broadly balanced. Downside risks stem mainly from international economic weakness and geopolitical uncertainty, while stronger-than-expected employment and wage growth could lift consumption and output further. Inflation risks are slightly tilted to the upside, particularly if services or food prices prove more persistent. Fiscal risks, meanwhile, remain skewed towards higher deficits, largely due to potential spending pressures, though these could be partly offset by additional revenue gains.