Malta’s wage growth slowest in the European Union

Wages are growing, but they are growing at the slowest rate in the EU, says the European Economic Forecast

Wage growth stands at 1.5% in Malta, the lowest rate in the bloc
Wage growth stands at 1.5% in Malta, the lowest rate in the bloc

Wages are growing in Malta, but according to the European Economic Forecast, they are growing at the slowest pace in the European Union.

The European Commission’s Autumn forecast for 2023 puts wage growth in Malta at 1.5%, making it the lowest rate in the European Union. Meanwhile, wage growth was fastest in some Eastern countries, reaching 20.2% in Romania.

Malta also ranks lowest in the EU in terms of real compensation per employee. Indeed, the year-on-year change in real compensation per employee stood in the negative at -4%.

Despite this, Malta tops the ranking in employment growth, with 3.7% growth. This increase in employment is being fuelled by strong labour demand, especially in tourism and administrative services.

According to the forecast, energy prices and supply bottlenecks were at the root of the recent inflation surge. But in Malta, non-energy imports were an important factor driving price increases.

A breakdown of Malta’s prices shows inflation between 2019 and 2022 was driven by non-energy imports and domestic unit profits and taxes.

Higher inflation in Malta led to decelerated private consumption and decreased investment, although the forecast notes a surge in aviation sector investment in 2022.

Despite government measures to cap consumer energy prices, the European Commission is still projecting inflation for 2023 to reach 5.7%, moderating to 3.3% in 2024 and 3.1% in 2025.

Economic growth is also expected to moderate in 2023, reaching 4%. This is down from 6.9% in 2022.  Private consumption should remain steady in 2023, having reached 5.2% growth in the first half of the year.

Meanwhile, the government deficit will decrease over the coming years, but still remain above the 3% target from the Stability and Growth Pact. The deficit decline in 2023 is being driven by the reduction of the net budgetary cost of measures to stem energy prices. Slower growth in employee compensation and social benefits is also expected to contribute to the reduction.

In 2024, the reduced costs related to the national airline is expected to be a main factor determining the reduction of the deficit. The year after, a further reduction of the deficit should be driven by the decline of the net budgetary costs of energy-related measures, which is forecast at 1% of GDP in 2025.

Another driver is intermediate consumption expenditures, but the European Commission said this would be partially offset by an increase in gross fixed capital formation and interest expenditure.