Malta Economic Outlook
Activity likely weakened further in Q4, following a deceleration in year-on-year GDP growth in Q3. The unemployment rate averaged higher in Q4 than in Q3, while consumer sentiment soured significantly. This, coupled with higher inflation, will have dented household spending. Moreover, year-on-year growth in tourist numbers declined from the third quarter, economic sentiment cooled and financing conditions tightened, seemingly weighing on business activity. On the flip side, annual industrial production growth strengthened, lending some support to the economy. Improved consumer and economic sentiment in January bode well for activity at the outset of Q1. Meanwhile, in early February, the IMF completed its Article IV consultation in Malta. The Fund praised the robust post-pandemic recovery but encouraged authorities to wind down energy subsidies and consolidate public finances ahead.
Malta Inflation
Harmonized inflation dropped to 6.8% in January from 7.3% in December, driven by slower increases in prices of food and non-alcoholic beverages, housing and utilities and transportation. Our panel expects inflation to ease in 2023 due to the ECB’s tighter monetary policy stance and lower energy prices. Rising wages and the de-anchoring of inflation expectations pose upside risks. Energy price swings are a factor to watch.