Recently, I have been hearing the term “growth pains” used repeatedly in public discourse. It is frequently deployed to explain that economic growth inevitably brings certain pains, and that such friction is merely the unavoidable consequence of expansion – suggesting that the only alternative to enduring these pains is having no economic growth at all. This is a simplistic argument which can be rather dangerous.
In the economic analysis introducing the pre-election proposals document titled Lead (Leverage, Excellence, Agility, and Delivery) – The Malta Chamber’s Proposals for 2026-2031 Legislature, the Malta Chamber presented a stark empirical analysis of the factors driving Malta’s economic growth in recent years. Analysing the period between 2013 and 2023, the analysis revealed that while Malta’s Gross Value Added (GVA) expanded by more than 80%, approximately 70% of that aggregate economic growth was driven purely by population growth and an expanding workforce (increased labour input). In contrast, a paltry 3% of that growth resulted from improvements in labour productivity. The Chamber’s figures demonstrate that Malta’s economic model relied almost entirely on sheer volume – bringing in more foreign labour, attracting more population, driving more transactions, and building more units – rather than generating higher output per worker.
Our growth pains are linked directly not merely to economic growth itself, but to our economic growth model, that is, how we chose to grow our economy. We chose to grow our economy at breakneck speed by failing to carefully calibrate the mix of economic growth sectors between highly productive sectors and low-productivity, labour-intensive sectors. We consistently chose volume growth over value.
This structural flaw was further elaborated in PwC Malta’s Economic Outlook, which highlighted a pronounced slowdown in national productivity. The PwC analysis demonstrated that while top-line GDP and GVA expanded, value-added per worker stagnated because national expansion was concentrated in low-productivity, labour-heavy industries, while higher value-added, highly productive sectors experienced deceleration. By relying on headcount to generate economic momentum, the national economy expanded through spatial and demographic pressure rather than structural efficiency.
The operational outcome of adopting this mindset from a volume-driven economic growth model is now explicitly outlined in the Central Bank of Malta’s Business Dialogue report (2026 Vol. 6 No. 3). The report demonstrates how this model is resulting in a sharp disconnect between turnover growth and actual profit growth across local businesses. While top-line activity appears buoyant – with a net balance of 41% of firms reporting positive current conditions and 49% anticipating further short-term improvements – businesses are suffering from systemic margin erosion. A staggering net share of 86% of surveyed firms reported surging input costs driven by supply chains, freight, and raw materials, yet only 51% were able to raise their selling prices due to market competition and contractual constraints.
Consequently, nearly 39% of businesses recorded a direct contraction in their profit mark-ups. Enterprises are processing higher revenues and managing higher transaction volumes, yet keeping less of the bottom line. Moreover, with labour availability remaining the primary operational bottleneck across 35% of all firms (and over 40% in services and construction), 64% of firms report wage increases between 2.1% and 6% simply to retain headcount, further compounding cost pressures on businesses that rely on labour-intensive operations.
These survey results directly illustrate the structural limitations of a volume-based economic growth model. When national growth is built on expanding physical volume and labour headcount rather than driving output per worker, businesses hit an operational wall. Scaling up transactions in a volume-driven framework inevitably leads to diminishing returns, as acute labour shortages, wage inflation, severe infrastructure bottlenecks, and unmanageable input costs eat away at enterprise profitability. The CBM data proves that high turnover under a volume model provides an illusion of prosperity while accelerating margin squeeze, demonstrating that endless headcount expansion cannot substitute for real productivity growth.
Rather than consoling ourselves by saying that these difficulties are just growth pains, we must focus on the way forward to fundamentally transform our economic growth model. Pivoting away from a volume-based framework toward a value-driven economy directly aligns with the long-term objectives of Malta Vision 2050 and the foundational metrics of any holistic national well-being index, both of which prioritise quality of life, environmental sustainability, and high-value economic efficiency over raw demographic expansion.
To execute this transition effectively, future government strategy must ensure that all cash and fiscal incentives are directed entirely toward higher productivity and redirected away from labour-intensive sectors. Public support, tax credits, and financial grants should no longer incentivise business models that depend on low-wage, high-volume employment. Furthermore, such fiscal incentives must incorporate explicit, mandatory metrics defining exactly how productivity will be measured such as Gross Value Added generated per employee, technological automation rates, or energy efficiency gains, to guarantee that public funds deliver verified economic returns.
Ultimately, hours lost sitting in gridlocked traffic or dealing with a crumbling infrastructure are not growth pains. They are systematic weaknesses that, among other policy decisions, need to be directly addressed by a decisive shift in our economic growth model.
