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Economy and Finance

Economic forecast for Malta

The latest macroeconomic forecast for Malta. 

The Maltese economy grew strongly by 6.9% in 2022, driven by domestic demand and export of services, benefiting from the further recovery in tourism. Growth is forecast to moderate to 3.9% in 2023, as high inflation affects household disposable incomes and consumption. GDP growth is then set to reach 4.1% in 2024, supported by continuing net migration flows. Sizeable government measures helped to keep energy prices unchanged in Malta. They are expected to remain in place also in 2023 and 2024. As a result, the general government deficit stood at 5.8% in 2022, among the highest in the EU. It is expected to gradually decrease in 2023 and 2024. Thanks to robust GDP growth, public debt is forecast to remain below 60% of GDP.

Indicators202220232024
GDP growth (%, yoy)6,93,94,1
Inflation (%, yoy)6,15,42,8
Unemployment (%)2,92,92,9
General government balance (% of GDP)-5,8-5,1-4,5
Gross public debt (% of GDP)53,454,856,1
Current account balance (% of GDP)1,63,84,1

Growth remains robust

Supported by strong growth in private consumption and investment, real GDP growth reached 6.9% in 2022, which is higher than projected in the Winter Forecast. Growth also benefited from the strong performance of the services sectors in general. Tourism in 2022 rebounded quickly and above earlier expectations, both in terms of total number of visitors and tourism expenditures. The growth impact of a marked jump in gross fixed capital formation, related to a large one-off equipment purchase operation, was compensated by a strong increase in imports, resulting in a negative contribution of net exports.

In 2023, real GDP is forecast to grow at a slower pace, by 3.9%, as high inflation limits private consumption and the positive impulse from tourism, following the post-pandemic re-opening, moderates. In 2024, real GDP growth is expected to pick up to 4.1%.

Employment grows strongly

Malta maintains a high pace of employment growth. Employment increased by an impressive 6.0% in 2022. Demand for labour increased across various sectors of the economy, both public and private, and was especially strong in tourism and administrative services. The labour force is set to continue growing at a robust pace in 2023 and 2024 in line with population growth as the country continued to attract foreign workers. Labour and skills shortages are expected to remain the main limiting factors for the Maltese economy over the forecast horizon. Malta’s unemployment rate fell to 2.9% in 2022 and is expected to remain around this level in 2023 and 2024.

Inflation remains high despite unchanged energy prices

HICP inflation in 2022 reached 6.1%, even though the energy prices were fixed at 2020 levels by government intervention. The Maltese authorities further confirmed their commitment to limiting energy inflation in 2023 and 2024. Nonetheless, inflation in 2023 is expected to stay high at 5.4%, pushed by increasing prices for imported goods (especially food), tourism services and housing maintenance services. In 2024, inflation is projected to slow to 2.8% as price growth in Malta’s main trade partners moderates.

The government deficit, despite decreasing, remains high in 2023 and 2024

The government deficit is expected to decrease from 5.8% of GDP in 2022 to 5.1% in 2023, remaining at a significant level. It is then set to decrease, albeit slowly, to 4.5% in 2024.

Thanks to lower international energy prices, the drop in public expenditure related to measures to mitigate the impact of high energy prices is the main factor determining the reduction of the deficit level in 2023. The net budgetary cost of the energy support measures is projected at 1.7% of GDP in 2023, compared with 2.5% in 2022. The Commission currently assumes the net cost of energy support measures at 1.5% of GDP in 2024. Deficit developments in 2023 are also affected by the assumed complete phasing out of COVID-19 emergency temporary measures, which are estimated to have amounted to 0.8% of GDP in 2022. The expected phasing out of the national airline restructuring costs and the growth in the government wage bill remaining below nominal GDP growth are also expected to contribute to the reduction of the deficit. On the other hand, intermediate consumption and gross fixed capital formation are expected to increase.

In 2024, the reduction of the deficit is set to be driven by a diminishing impact of energy-related measures and the phasing out of the national airline early retirement schemes and is partially offset by an increase of the interest expenditure. The contained growth of intermediate consumption expenditure and of the public wage bill are also set to contribute to lower the deficit ratio.

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 grow. The government debt-to-GDP ratio is set to increase to 54.8% in 2023 and reach 56.1% in 2024 as the primary balance, i.e., the budget balance net of interest, remains negative.