Central Bank forecasts steady 3.7% economic growth through 2028

Malta’s economy is expected to grow at a steady annual rate of 3.7% between 2026 and 2028, according to the Central Bank’s latest medium-term forecasts.

The bank said its outlook for real GDP growth remains unchanged compared to previous projections, with economic expansion over the coming years driven primarily by private consumption. Household spending is expected to remain robust, partly supported by recent changes to income tax bands.

Net exports are also forecast to contribute positively to growth, particularly through trade in services, although their impact is expected to be smaller than that of domestic demand.

Employment growth is projected to moderate gradually, reaching 2.3% by 2028. The unemployment rate is expected to edge down to 2.8% from this year’s level. Wage growth is set to remain strong but is forecast to slow over the projection horizon as labour market tightness eases.

Inflation, measured by the Harmonised Index of Consumer Prices (HICP), is expected to stand at 2.3% in 2026 before easing to 2.1% in 2027 and 2.0% in 2028. The decline is largely attributed to lower services inflation. Core inflation, which excludes energy and food, is also projected to fall to 1.9% by 2028. Compared to its previous publication, the bank left its inflation projections broadly unchanged.

Public finances are also forecast to improve gradually. The general government deficit-to-GDP ratio is expected to decline from an estimated 3.0% in 2025 to 2.8% in 2026, 2.4% in 2027 and 2.0% by 2028. The debt-to-GDP ratio is projected to peak at 47.1% in 2026 before easing to 46.2% by 2028.

Compared with the bank’s December projections, the deficit forecast has been revised slightly downwards by around 0.1 percentage point annually between 2026 and 2028.

The central bank said risks to economic activity are broadly balanced. Downside risks stem mainly from potential weakness in the international economic environment and heightened geopolitical uncertainty. However, stronger-than-expected employment and wage growth could boost private consumption and lead to higher output growth than currently envisaged.

Risks to inflation are slightly tilted to the upside, particularly if services inflation proves persistent or if food prices rise due to adverse climate conditions. At the same time, renewed trade tensions or weaker global growth could dampen imported inflation.

On the fiscal side, risks are seen as deficit-increasing, mainly due to possible higher current expenditure, including energy support measures and wage-related costs. These risks could be partly offset by stronger-than-expected revenue.