According to the Central Bank of Malta’s latest forecasts, Malta’s gross domestic product (GDP) is expected to grow by 3.7% this year, down from just above 7% in 2022 and to edge down to to 3.6% by 2025.
This implies a downward revision when compared to the Bank’s previous projections.
In 2023, net exports are expected to be the main contributor to GDP growth, while domestic demand is expected to lower growth due to a base effect from extraordinary investment in 2022 which offsets positive contributions from consumption. From 2024, domestic demand is expected to be the main driver of growth.
Employment growth is set to moderate in the projection horizon, while wages are expected to pick-up due to relatively high inflation and a tight labour market.
Annual inflation based on the Harmonised Index of Consumer Prices is projected to stand at 5.9% this year, only marginally lower from 6.1% in 2022. It is thus foreseen to remain elevated due to lingering indirect effects through the response of wages to recent increases in input costs and profit margins.
The general government deficit is set to decline throughout the projection horizon, while the general government debt-to-GDP ratio is set to edge up, and to reach 54.7% by 2025.
On balance, risks to economic activity are tilted to the downside for 2023 and balanced therafter, while those to inflation are to be balanced for the entire projection horizon. On the fiscal side, risks are on the downside (deficit-increasing) particularly in 2023, mainly reflecting additional support measures related to Air Malta and higher than expected outlays on electricity distribution and compensation for blackouts.