Inflation eases in 2024 as rise in consumption drives greater growth

Malta’s gross domestic product (GDP) will grow by 4.4% in 2024 according to the latest Central Bank forecasts issued Tuesday.

Growth is expected to edge down to 3.6% in 2025, and to 3.3% by 2026. But the 2024 figures are an upward revision when compared to previous projections, while for 2025 and 2026 the outlook is unchanged.

The Central Bank said the upward revision is mainly on account of positive revisions in private consumption and net exports in the latest national accounts data release.

While in 2023, growth will be primarily driven by net exports, it is domestic demand that is envisaged to be the main driver of growth in 2024.

“Private consumption growth continues at a brisk pace and private investment, is expected to recover slowly. Net exports are also projected to contribute positively, driven mainly by services exports. Growth in 2025 and 2026 is also expected to be led by domestic demand,” the Central Bank said.

Jobs growth is set to moderate but wages are expected to pick up in 2024, in view of the high inflation in the recent past, 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 2.9% in 2024, before reaching 1.9% by 2026. Compared to previous projections, inflation has been revised down by 0.1 percentage point throughout the forecast period, in line with recent data outturns.

Government deficit-to-GDP ratio is set to decline, but debt-to-GDP ratio will rise to 54.3% by 2026. When compared with the previous projection round, the projected deficit and debt ratios were both revised downwards. 

“On balance, risks to economic activity are tilted to the downside in 2024, as the ongoing geopolitical tensions could weigh on trade. In particular, disruptions to shipping around the Suez Canal could give rise to some supply bottlenecks or longer waiting times, apart from possible higher costs. Risks are more balanced in the following years,” the Central Bank said.

Risks to inflation are also balanced. Upside risks hail from the Red Sea tensions and climate impact mitigation measures under Fit-for-55, apart from extreme weather events. On the other hand, downside risks relate to the stronger pass-through from monetary tightening to domestic financial and real economic conditions, as well as the impact from the Maltese government’s measure to curb prices of selected food products in the short term

There could also be higher-than-expected outlays on energy support measures, in the event that commodity prices are higher than envisaged, apart from additional spending on pensions and public sector wages. “These risks are partly offset by the likelihood of a pick-up in the pace of fiscal consolidation in the outer years of the forecast horizon,” the Central Bank said.