Maltese wages and inflation to rise as labour market expands, says Commission

Malta’s strong labour market is expected to lift wages and increase prices, the European Commission’s autumn forecast is predicting. 

The Commission said that increase in employment in Malta is expected to remain strong, but to start moderating as economic growth eases. 

Pressure to raise wages has remained contained, due to the expanding labour supply, and despite strong employment growth and low unemployment – which should remain at a rate of around 4% for the next two years. 

Due to the tighter labour market however, wage pressure is expected to strengthen, leading to high compensation for employees. 

Inflation began to accelerate in the April to June period 2018, partly due to the increase in international oil prices and in the weight given to accommodation services in the price index. 

The report predicts that inflation will progressively rise on the back of wage growth, reaching around 2% in 2020. 

Growth to ease, surplus to decline 

Economic growth is expected to gradually ease to an annual average rate of 4.9% in 2019 and 4.4% in 2020, with domestic demand, supported by strong investment increases, being the main driver of this. 

Various investment projects co-financed by EU structural funds have started and will boost public investment in the second half of 2018, the Commission’s report says. 

In 2019, the onset of large-scale projects in the health, tourism and real estate sectors is envisaged to boost private investment. 

Private consumption should remain dynamic, due to increasing labour market participation and disposable income. 

In 2018, the government surplus is projected to decrease to 1.3% of GDP, from 3.5% in the previous year, the forecast said, with an expected fall in earnings from Maltese citizenship contributing to this. 

Next year, after incorporating the expected impact of the measures introduced with the 2019 budget, the fiscal surplus is expected to decline marginally to 1.2% of GDP, the report predicts.