Economic resilience

This will be my last weekly article for 2025. I therefore wanted to use this article to stress the economic policy outlook Malta should take in the coming years.

Malta, a small island nation, nestled at the crossroads of continents, has long navigated geopolitical currents that have shaped its history and its economy. Today, as the world lurches through one of the most volatile periods since the Cold War, the call for economic resilience is not a policy option – it is a national imperative for survival.

The current global backdrop is defined by a deep and pervasive turbulence that threatens the very pillars of the post-war international order. The Russian war of aggression against Ukraine continues to destabilise Europe’s security architecture, but the risks now extend far beyond the immediate conflict zone. This systemic danger was starkly highlighted by the current NATO Secretary General Mark Rutte, who has repeatedly called on allies to adopt a “wartime mindset” and drastically increase defence-spending and production. Rutte has warned that the collective deterrence is only “good – for now”, and that the West is “not ready for what is coming our way in four to five years”, urging a shift from a peacetime to a wartime economy to prevent the next great conflict.

Compounding this pressure is a worrying realignment of major global powers. The user correctly points to a narrative of the United States pursuing policies that, rather than strengthening the transatlantic bond, appear to be strategically decoupling from its traditional allies. The recent publication of a US strategic outlook against Europe – or at the very least, a highly transactional one – signals a profound shift. Documents indicate a strategy focused on “burden-sharing”, demanding Europe takes “primary responsibility for its own defence” and prioritising US domestic and Indo-Pacific interests.

For a non-aligned, neutral, services-based nation like Malta, these developments – a continent-wide security alert and a weakening of the European institutional framework – are a direct multiplier of economic risk, exposing the island to vulnerabilities in trade, supply chains, and investor confidence.

In the face of this external volatility, Malta’s long-term security lies in strengthening its internal structures. The Maltese economy has shown remarkable resilience, but its long-term growth is heavily reliant on an influx of foreign labour rather than genuine productivity growth. The challenge is to shift from an economic growth model based on volume (more workers, more hours) to a model based on value (higher output per hour). Research indicates that a tight labour market has led to wage inflation, particularly in some sectors, but this has not always been matched by a proportional increase in real labour productivity per hour worked. This rise in real unit labour costs can erode Malta’s competitiveness over time, especially in its export-oriented sectors.

This requires a comprehensive and often painful economic transformation – one that moves beyond quick fixes and short-term political cycles. It calls for bold decisions on:

• A radical overhaul of the education system to foster digital agility, critical thinking, and innovation, linking skills directly to a higher-value economy.
• Aggressive investment in technology, automation, and Artificial Intelligence (AI) to make local businesses, especially the micro-enterprises and certain SMEs that dominate the landscape, more efficient and internationally competitive. Hopefully the latest budget initiatives will help on this front.
• Taking difficult decisions to manage public finances, reduce the deficit, and ensure sustainability, thereby creating the necessary fiscal space to invest in the economy’s future.

This transformation cannot be achieved with a finite, short-term view of politics or business. It demands what author and leadership expert Simon Sinek calls an “infinite mindset”. Unlike a finite mindset, which focuses on winning the next quarter or the next election, the infinite mindset focuses on the long-term, sustained health and growth of the system. It is about building institutions, capabilities, and a national culture that will outlast any single leader or political administration.

For Malta, adopting an infinite mindset means, making necessary reforms, even if they are politically unpopular in the immediate term, because they serve the long-term prosperity of the nation. The car traffic problem is a case in point.

The current geopolitical environment acts as a harsh spotlight, revealing the structural cracks in all economies. Malta’s future economic resilience hinges on its ability to transcend this turbulence by driving its own high-productivity transformation with the sustained commitment of an infinite mindset. It is the only way to safeguard its wealth, its sovereignty, and its place in a deeply uncertain world. I hope the much-needed implementation of Malta Vision 2050 will deliver on this.

I would like to take this opportunity to wish all readers a very Merry Christmas and a prosperous and healthy New Year.