Malta Economic Forecast

Year-on-year GDP growth slowed from 5.0% in Q1 to 3.9% in Q2. A softer expansion in household spending amid still-elevated inflation and a sharper contraction in fixed investment were behind the deceleration. On the flip side, exports of goods and services rebounded, aided by a recovering tourism sector. Data for Q3 points to resilient activity. The unemployment rate remained unchanged at 2.5% in July, and in the same month, inbound tourists were up 17.5% year on year. That said, economic sentiment averaged lower in July–August compared to Q2, as higher interest rates and declining, but still-elevated, inflation likely weighed on the economy. Meanwhile, in mid-September, Fitch Ratings affirmed the country’s ‘A+’ rating with a stable outlook, praising Malta’s significant debt reduction and strong growth.

Harmonized inflation fell to 5.0% in August from 5.6% in July, mainly due to falling transport prices and softer increases in recreation and culture. Inflation should continue its downtrend ahead amid higher interest rates and softer domestic demand. A wage-price spiral and commodity price spikes are upside risks.