2023-2026 – GDP expected to grow at a more moderate pace, Central Bank says

According to the Central Bank of Malta’s latest forecasts, Malta’s gross domestic product (GDP) is expected to grow by 3.8% in 2024, to edge down to 3.6% in 2025 and to 3.3% by 2026. For 2024, this implies an upward revision when compared to the bank’s previous projections, while for 2025 the outlook is unchanged.

It should be noted that these forecasts do not incorporate the national accounts data published on 28 November by the National Statistics Office. The strong upward revision in GDP growth made in that release means that it is likely that the bank’s projections, especially those for 2023, will be revised further upwards in the next projection round.

Domestic demand is expected to be the main driver of growth, as private consumption growth continues to grow at a brisk pace and private investment begins to recover. Net exports are also projected to contribute positively, driven mainly by growth in services exports.

Employment growth is set to moderate in the projection horizon, while wages are expected to pick-up in 2024, due to relatively high inflation and a tight labour market.

Annual inflation based on the Harmonised Index of Consumer Prices is projected to ease from 5.6% in 2023, to 3% in 2024, before reaching 2% by 2026. It is thus foreseen to remain above the Eurosystem price stability objective next year due to lingering indirect effects through the response of wages to recent increases in input costs and profit margins. However, compared to previous projections, inflation has been revised down, in line with recent data outturns.

The general government deficit is set to decline throughout the projection horizon. The general government debt-to-GDP ratio is set to increase and to reach 56.7% by 2026. When compared with the previous publication, the deficit and debt ratios were revised down in 2023, but up in the following two years.

On balance, risks to economic activity are tilted to the upside for 2023 and 2024, reflecting the latest revisions to national accounts, as well as the outturn for the third quarter. Risks are also on the upside in the outer years, though smaller.

Risks to inflation are also tilted slightly to the upside in 2024 but are balanced thereafter.

On the fiscal side, risks are on the upside (deficit-reducing) in 2023 due to the likelihood of stronger than expected growth in tax receipts. Risks are then set to tilt on the downside (deficit-increasing) from 2024, mainly reflecting the likelihood of higher than expected spending on energy support measures.