MFAC endorses Government’s 2026 economic forecasts, calls for productivity-focused growth strategy

The Malta Fiscal Advisory Council (MFAC) has formally endorsed the Government’s macroeconomic forecasts underpinning the Annual Progress Report 2026, concluding that the projections are based on reasonable assumptions and fall within the Council’s endorsable range. While affirming the credibility of the forecasts, the Council has also urged policymakers to shift greater attention towards productivity-led growth and strategic investment to safeguard Malta’s long-term economic competitiveness.

In its latest assessment, the MFAC paints a broadly positive picture of Malta’s economic outlook, noting that the country remains one of the fastest-growing economies in Europe despite a challenging international environment marked by geopolitical tensions, trade uncertainties, and slower growth across major economies.

The endorsement of the forecasts represents an important institutional validation of the Government’s economic assumptions and policy framework. Under Malta’s fiscal governance arrangements, the MFAC is tasked with independently assessing the plausibility of the macroeconomic projections used in national budgetary and fiscal planning.

According to the Council, Malta’s economy continues to demonstrate resilience, supported by strong domestic demand, a robust labour market, and continued investment activity. These factors are expected to underpin economic growth in 2026, even as external conditions remain uncertain.

However, the report goes beyond a technical endorsement of the forecasts and raises broader strategic considerations regarding the quality and sustainability of economic growth.

Productivity as the next growth frontier

One of the report’s central messages is the need for Malta to place greater emphasis on productivity as a driver of future prosperity.

For much of the past decade, Malta’s economic expansion has been underpinned by strong employment growth, rising labour force participation, and inward migration. While these factors have contributed significantly to GDP growth, the MFAC argues that the next phase of economic development should increasingly rely on improvements in productivity and innovation.

The Council notes that productivity gains are essential if Malta is to sustain rising living standards, strengthen competitiveness, and maintain economic growth without placing excessive pressure on labour supply, infrastructure, and public services.

This recommendation reflects a growing consensus among economists that small, open economies such as Malta must increasingly generate growth through efficiency improvements, technological adoption, and higher-value economic activity rather than relying predominantly on increases in labour inputs.

The MFAC’s assessment suggests that productivity enhancement should become a central pillar of economic policy, particularly as demographic constraints and labour market tightness become more pronounced.

Strategic investment priorities

To support this transition, the Council calls for stronger productive investment across several key areas.

Human capital development features prominently among the MFAC’s recommendations. The report emphasises the importance of equipping workers with the skills required in a rapidly evolving economy, particularly in sectors characterised by technological advancement and digital transformation.

Investment in education, vocational training, upskilling programmes, and lifelong learning initiatives is viewed as critical for enhancing workforce productivity and supporting the development of higher-value industries.

The Council also highlights digitalisation as a major opportunity for improving economic efficiency and competitiveness. Accelerating the adoption of digital technologies across both public and private sectors could help businesses improve productivity, reduce costs, and access new markets.

Research and innovation constitute another priority area identified in the report. Malta has made progress in fostering innovation ecosystems, but the MFAC suggests that greater investment in research and development could help strengthen the country’s capacity to generate knowledge-based growth and attract high-value investment.

Advanced infrastructure is similarly viewed as a prerequisite for sustaining long-term economic performance.

Collectively, these investment priorities reflect a strategic vision focused on enhancing Malta’s productive capacity rather than merely expanding economic activity through increased factor inputs.

Navigating a complex global environment

The MFAC’s report also places Malta’s economic outlook within the context of an increasingly uncertain global landscape.

International economic conditions remain subject to significant risks stemming from geopolitical tensions, evolving trade relationships, inflationary pressures, and slower growth prospects across key trading partners.

While inflation has moderated considerably compared to the peaks experienced in recent years, uncertainty persists regarding the future trajectory of global prices, interest rates, and financial conditions.

For Malta, whose economy is deeply integrated into international markets through trade, tourism, financial services, and foreign investment, these developments represent important external risks.

The Council acknowledges that forecasting in such an environment is inherently challenging. Nevertheless, it concludes that the Government’s assumptions appropriately reflect current information and are supported by reasonable expectations regarding both domestic and external economic developments.

At the same time, the report underscores the importance of maintaining policy flexibility to respond to changing circumstances should downside risks materialise.

With economic growth expected to remain robust in 2026, the focus is increasingly shifting from how fast the economy grows to how sustainably and productively that growth can be achieved. The Council’s recommendations suggest that the answer lies in building a more innovative, skilled, and efficient economy capable of meeting the challenges of an increasingly complex global environment.