Normalizing growth, but still above the Eurozone average

Malta’s economic performance remains on a strong trajectory, with 2024 another record year in terms of economic performance, driven by strong private and public consumption. Economic output stood 27% above end-2019 levels. Tourism, a cornerstone of Malta’s economy, has not only recovered from the pandemic-induced downturn but has surpassed pre-Covid levels. By 2023, the number of arrivals had already exceeded the 2019 benchmark. This positive momentum continued into 2024, with tourist arrivals between January and August up by more than 20% compared to the same period in 2023. Tourism expenditures grew in tandem, bolstering the hospitality, recreational and related services sectors. Moreover, professional, IT and financial services – the other key pillars of Malta’s service-oriented economy – are also expanding robustly, reinforcing export growth. In 2024, exports continued to outpace imports, delivering a positive contribution from trade to overall GDP growth. Following a notable slowdown in 2023, investment growth is expected to accelerate, supported by the ongoing absorption of funds from the EU’s Recovery and Resilience Facility (RRF). Overall, GDP is expected to moderate into a steadier growth path in the medium term, at around +1.9% and +1.7% for 2025 and 2026, respectively.

Strong migratory flows have been a key driver of economic activity but are unlikely to be sustained. Malta’s population is now 25% larger than in 2015, driven by liberal migration policies amid an aging native population and the EU’s lowest birth rate. The inflow has included both high-skilled EU workers and lower-skilled labor from non-EU countries, contributing significantly to recent economic growth. This resulted in a decrease of the unemployment rate to historic low, and a contained wage pressure given the increased inflows of foreign workers. However, as Malta is already the most densely populated EU member state and faces growing infrastructure constraints, tighter migration policies—especially for non-EU arrivals—are likely.

Inflation continues to decelerate after the 2022-2023 spike. Malta’s CPI remained below 2% from 2013 to August 2021, spiked during the energy crisis and saw a dip in 2024, with headline inflation averaging 1.7% by the end of the year. We expect price growth to stabilize around the ECB’s target in 2025 and 2026.

In 2024, the general government deficit is expected to decline compared to the previous year, reflecting a reduction in subsidies – particularly those aimed at cushioning the impact of elevated energy prices – and lower restructuring costs for the national airline. By 2025, this downward trend is set to continue as subsidies further decrease relative to the size of the economy, although some measures targeting energy prices are likely to remain.