After 2025 decline, economic growth to remain stable at 3.7% until 2028 – Central Bank

According to the Central Bank of Malta’s latest forecasts, Malta’s real GDP growth is set to moderate from 6.8% in 2024 to 3.7% in 2025. Growth is set to remain stable at 3.7% in the following three years.

Compared to the bank’s previous projections, the outlook for GDP growth is revised marginally down in 2025 and up in the following two years, the bank said Friday.

Growth over the projection horizon is expected to be led by private consumption, which is projected to continue to grow at a brisk pace, while investment should also continue to increase over the projection horizon. Furthermore, net exports are projected to contribute positively to GDP growth over the forecast horizon, driven by trade in services. However, this contribution is set to be much smaller than that of domestic demand.

Employment growth is expected to moderate gradually from 5.3% in 2024 to 3.5% this year before easing further to 2.3% by 2028. The unemployment rate is forecast to stand at 2.9% in 2025 before edging down to 2.8% for the rest of the forecast horizon, the bank said.

Labour market tightness is expected to persist but ease over the projection horizon. This will be a key factor driving the wage outlook. Following strong growth last year, upward pressure on wages is expected to dampen, moderating to 5.6% in 2025 from 6.8% last year, partly reflecting slower productivity growth. It is set to slow further throughout the projection horizon as labour market tightness is set to ease.

Annual inflation based on the Harmonised Index of Consumer Prices (HICP) is projected to stand at 2.4% in 2025, unchanged from a year earlier, as a decline in food inflation is expected to offset higher services inflation. HICP inflation is expected to ease to 2.3% in 2026 and 2.1% in 2027 and 2028, driven primarily by lower services inflation. Compared to the Bank’s previous forecast publication, overall HICP inflation was revised up by 0.1 p.p. in 2025 and 2027 and by 0.2 p.p. in 2026. This primarily reflects recent upward surprises in services inflation.

The general government deficit-to-GDP ratio is projected to decline from 3.5% in 2024 to 3.3% in 2025, and fall below 3.0% next year, before narrowing further to 2.1% by 2028. The general government debt-to-GDP ratio is projected to peak at 47.6% in 2026 before declining to 46.9% by 2028. Compared with the Bank’s August projections, the forecast deficit and debt profile were revised downwards by approximately 0.1 percentage point and 1.0 percentage point of GDP in each year, respectively.

Risks to activity are broadly balanced. Downside risks largely emanate from possible continued weakness in the international economic environment, primarily in the euro area. On the other hand, employment and wages could exhibit even stronger dynamics than envisaged. This would result in higher private consumption growth, thus raising output growth more than envisaged.

Risks to inflation are slightly tilted to the upside over the projection horizon, the bank said. Upside risks to inflation could stem from the persistence in services inflation as well as wage pressures which remain relatively strong. Food inflation could turn higher than expected in the presence of adverse climate effects. Some downside risks remain, particularly arising from the re-routing of exports from competitor countries to the EU and heightened competitive pressures in markets targeted by tariffs. Additionally, a renewal of trade tensions between the US and its trading partners would amplify uncertainty and further dampen global growth, putting more downward pressure on imported inflation.

On the fiscal side, risks are assessed to be tilted towards the downside (deficit-increasing). These predominantly stem from the possibility of slippages in current expenditure, such as higher-than-expected spending on energy support measures should commodity prices exceed assumptions, the bank said.