A recent report by the Central Bank of Malta, based on interviews with non-financial corporations (NFCs), provides a detailed overview of the key trends and challenges that shaped the Maltese business environment in 2024. The report, which is the first of a series of dialogues in 2025, offers valuable insights into the economic conditions, business expectations, cost and price dynamics, investment and employment trends and wage growth across various sectors. The data was collected through 45 interviews conducted between October and December 2024.
This analysis reveals a complex picture of an economy experiencing a slowdown, rising costs and persistent labour shortages, but also one demonstrating resilience and adaptability.
While the overall net balance of recent activity remained positive at 9%, the report indicates a significant weakening compared to previous quarters, suggesting a deceleration in business activity. This overall trend, however, masks considerable divergence across sectors as outlined below:
- Service-oriented firms experienced the highest incidence of expansion in activity. Industries such as accommodation and hospitality, travel and transport, and audit and consultancy reported generally stable or improving conditions. However, the consultancy sector noted that while activity was positive, market conditions were difficult due to competition, international taxation and political uncertainty in key economies.
- Manufacturing firms also saw positive activity, although to a lesser extent than service providers. Sub-sectors producing food and beverages reported stable or improving sales, revenues and profits.
- Wholesale and retail trade sector faced stagnant conditions with uneven demand across subsectors. Vehicle sales performed well, driven by higher-income consumers, while mid-range retailers and sellers of daily goods struggled due to increased consumer price sensitivity.
- Construction sector continued to report relatively low demand for new projects, despite resilient demand in property sales and letting. Additionally, stronger regulations added to the challenges faced by this sector.
Looking ahead, the net balance of businesses expecting an improvement in business activity fell to 20% from 37% in the previous quarter, with construction and real estate exhibiting the least favourable outlook. This indicates a cautious approach from companies in these sectors regarding the near future. Retailers anticipated seasonal demand increases, and manufacturing firms expected stability, while service firms saw a significant reduction in optimism. External risks, such as more stringent EU regulations and global economic uncertainties, tempered expectations across all sectors.
Rising input costs remained a major concern for Maltese businesses, with a net 69% of firms reporting increases, which is up six percentage points from the previous quarter. Although the pace of cost increases had moderated compared to previous years, labour costs were identified as the most significant pressure point. The cost of some food and beverage items, raw materials and maintenance and engineering services also continued to increase.
Despite rising costs, the net share of businesses increasing selling prices dropped to 29% from 41%, indicating that firms were finding it more challenging to pass on cost increases to consumers. This was largely because of competitive pressures. Construction and manufacturing firms mostly maintained stable prices to preserve their market share amid intense competition. Service providers, conversely, generally increased prices to offset higher labour costs. Retailers faced a mixed situation, with some adopting promotional strategies to boost sales, while others reduced prices to remain competitive.
An analysis of profit trends between 2023 and 2024 reveals that a higher percentage of companies reported increased profits in 2024 (29%) compared to 2023 (14%). Furthermore, 30% of firms that faced higher costs in 2024 managed to increase their profits, compared to only 12% in 2023. This suggests that companies in 2024 were better at managing rising costs. Service sector firms were able to stabilise profits despite rising costs, through operational efficiencies and selective price adjustments. Manufacturing firms used cost-management strategies like automation and bulk buying to maintain profitability. Wholesale and retail businesses, particularly in food and beverage, struggled with rising costs in both years, but the impact was more severe in 2024 due to competitive pressures. Construction firms were more likely to report profit declines in both years because of increased material and compliance costs leading to lower margins.
Firms that had lower or stable costs were more likely to report improved profits in 2024 than in 2023. Around 60% of businesses that increased their profits also increased their selling prices, indicating that they were able to pass on costs to consumers without losing competitiveness. However, around a third of companies were able to increase profits without raising prices, indicating that they achieved gains by improving efficiency and sourcing cheaper products. The manufacturing sector was better at passing on cost increases in 2024, while the retail sector avoided price increases in 2024 due to price sensitivity and competition.
The net balance of firms planning to increase investment rose to 27% from 0% in the previous quarter, driven by a focus on sustainability and digitalisation. Firms across sectors prioritised initiatives that enhance operational efficiency. Manufacturing companies planned investments in automation and energy efficiency to benefit from the digital and green transition. Service providers emphasised digitalisation, IT upgrades and facility refurbishments to improve service delivery. Retail companies primarily planned to open additional outlets and refurbish existing ones. Construction firms planned to diversify their revenue streams.
Self-financing remained the dominant method of funding, reported by 43% of firms, while only 14% of firms used bank loans exclusively. Companies using a mixture of funding sources aimed to diversify risk.
Employment plans indicated a similar pace of job creation as in the third quarter, with a net balance of 24% compared to 22% previously. Labour shortages persisted, leading to innovative recruitment strategies. Most firms reported wage increases of 5-6% in 2024, and some exceeded 8% to attract and retain talent. For 2025, expectations are for more moderate wage growth, primarily in the 3-6% range.
Skilled labour shortages remained the most pressing issue, affecting 36% of respondents, particularly in manufacturing and construction. Other notable challenges included bureaucratic inefficiencies and increased competition.
In 2024, the majority of firms implemented wage increases in the 5-6% range, with over 90% reporting moderate to high increases, which indicates significant wage pressures; 20% of firms reported wage increases exceeding 8%. Looking ahead to 2025, wage expectations have shifted towards more moderate increases, with nearly 70% of respondents projecting wage growth between 3-6%. The services and wholesale and retail sectors anticipate the highest wage increases in the coming year. Labour-intensive industries are likely to face ongoing challenges due to labour shortages and competition for talent into 2025.
The report also highlights specific challenges and trends across various sectors as shown below:
- Manufacturing: Skilled labour shortages were a key issue for nearly half of businesses. Some firms in the food and beverage sector reported stable or improving sales and profits. Investments are focusing on automation and energy efficiency.
- Services: More than a third of firms reported “Other” difficulties, including the need for improved air connectivity and the small size of the local market. Some firms faced strong wage pressures and competition, and also highlighted bureaucratic inefficiencies.
- Maritime and freight: Experienced stable operations dependent on ship calls at Maltese ports, which had declined due to Red Sea issues and the EU’s Emissions Trading Scheme.
- Retail: The sector experienced uneven performance, with vehicle sales thriving and mid-range retailers struggling due to consumer price sensitivity. Most firms cited market saturation leading to low margins, and the availability of skilled labour.
- Construction: Faced low demand for new projects, stronger regulations and rising costs, with 43% of firms citing a difficulty in finding customers, and the availability of skilled labour.
In summary, 2024 was a year of mixed fortunes for Maltese businesses. Although overall business activity remained positive, a significant slowdown was evident, coupled with growing caution. Rising input costs, particularly labour costs, and persistent labour shortages posed significant challenges, alongside regulatory and geopolitical uncertainties.
However, Maltese businesses demonstrated resilience and adaptability by implementing cost-management strategies, improving operational efficiencies and making strategic investments in digitalisation and sustainability.
The insights from this report provide a valuable perspective on the Maltese business landscape and highlight the need for continuous adaptation and innovation in the face of evolving challenges.
