The latest macroeconomic forecast for Malta.
The Maltese economy is expected to grow strongly by 5.7% in 2022, driven by domestic demand and export of services, including tourism. Growth is forecast to moderate to 2.8% in 2023, as the supporting growth momentum of services exports fades and the impact of higher prices reduces household purchasing power, and reach 3.7% in 2024. Malta has kept energy prices unchanged due to the implementation of sizeable government measures. The government remains committed to keeping energy prices stable also for 2023 and 2024. As a result, the general government deficit is projected to be at 6% in 2022, among the highest in the EU, only gradually decreasing in 2023 and 2024. Public debt remains close to 60% of GDP.
| Indicators | 2021 | 2022 | 2023 | 2024 |
|---|---|---|---|---|
| GDP growth (%, yoy) | 10,3 | 5,7 | 2,8 | 3,7 |
| Inflation (%, yoy) | 0,7 | 6,1 | 4,0 | 2,4 |
| Unemployment (%) | 3,4 | 3,2 | 3,1 | 3,0 |
| General government balance (% of GDP) | -7,8 | -6,0 | -5,7 | -4,4 |
| Gross public debt (% of GDP) | 56,3 | 57,4 | 59,9 | 60,6 |
| Current account balance (% of GDP) | 4,9 | 5,1 | 5,5 | 6,0 |
Malta maintains its growth trajectory in an uncertain environment
So far, economic growth in Malta has only been affected by Russia’s invasion of Ukraine to a limited extent, given its low direct exposure to trade with these two countries. On the back of a strong economic performance in the first half of 2022, real GDP growth this year is expected to reach 5.7%, driven by robust domestic demand and a strong positive contribution from net exports.
The tourism sector in Malta is expected to show robust growth this year, as the number and expenditure of tourists by August reached around 80% of the 2019 level. In the current volatile environment, real GDP growth is forecast to moderate markedly to 2.8% in 2023 as the positive contribution of net exports diminishes and domestic demand growth slows down, due to weakening private consumption and negative growth in government consumption. In 2024, GDP growth is expected to reach 3.7%, supported by net exports and growth in public consumption.
Overall, exports growth in 2023 is expected to weaken, as the general slowdown in economic performance among Malta’s trading partners starts to have a greater negative impact on the Maltese economy.
Labour shortages remain a bottleneck
In the past two years, Malta managed to maintain strong employment growth by limiting the impact of the pandemic through fiscal support. Employment grew by 2.9% in 2021, with the wage support measures remaining largely in place. Employment is set to continue growing at a similar pace in 2022 and over the forecast horizon. Labour shortages are expected to persist. Demand for labour remains strong in tourism and administrative services sectors, while Malta continues to attract foreign workers, adding to its labour force. Malta’s unemployment rate is forecast to decline to 3.2% in 2022, and to further decrease to all-time lows in 2023 and 2024.
Inflation increased substantially
Malta’s government intervened to keep energy prices unchanged in 2022, with an expressed government’s commitment to pursue this line of action over the forecast horizon. Despite this effort, inflation in 2022 is expected to rise to 6.1%. Inflation is particularly high in imported goods, particularly food, transport, hospitality and housing services. These factors will continue to drive price increases in 2023, with inflation expected at 4.0%. At the same time, wage growth is expected to remain moderate.
The government deficit is set to decrease but remain among the highest in the EU
The government deficit is expected to decrease from 7.8% of GDP in 2021 to 6.0% in 2022. The increase in public expenditure related to measures to mitigate the impact of high energy prices is the main factor explaining this still high deficit level despite strong nominal GDP growth and the phasing out of pandemic-related support measures. These energy-related measures are estimated to account for 2.9% of GDP in 2022 and are expected to further rise to 3.5% of GDP in 2023, before declining to 2.7% of GDP in 2024. As a result, the general government deficit is set to decrease only marginally to 5.7% of GDP in 2023 and more markedly to 4.4% in 2024.
Tax revenue is expected to increase over the forecast horizon, in line with nominal GDP. Following further growth in employment, the revenue from social contributions is also projected to continue increasing.
The government debt-to-GDP ratio is set to increase to 57.4% in 2022 and gradually reach 60.6% in 2024 as the primary balance remains negative and nominal GDP growth becomes less dynamic.