Malta

Normalisation of strong growth driven by domestic demand

Despite a slowdown, the Maltese economy will maintain its growth momentum in 2025, well ahead of the rest of the eurozone. Like most southern European countries, its growth will be driven by increased domestic demand. First of all, household consumption will continue to grow thanks to renewed purchasing power, with real wages catching up as disinflation is confirmed, and a tight labour market encouraging wage increases. The labour market, with an unemployment rate of 3% in November 2024, will remain tight. Job growth is largely driven by immigrant workers, chiefly from outside the EU, with foreign workers now accounting for over 30% of total employment. Household disposable income will also be boosted by the widening of income tax brackets announced in the state budget. Second, investment will continue to be partly encouraged by the use of NextGenerationEU funds from the European Recovery Plan (2.3% of 2019 GDP to be used by 2026) and by the country's efforts to create a business-friendly environment, particularly for the technology sector. However, the continuing risk of criminal sanctions related to suspected money laundering and other illegal activities is likely to erode this investment potential.

In addition, net exports will once again be driven by the performance of tourism (25% of GDP and employment), which continues to break records and should continue to grow, albeit at a more moderate pace. In the first eleven months of 2024, foreign tourist arrivals were 20% and 30% above the respective levels of 2023 and 2019. The online gaming industry (virtual poker, casino games, sports betting), which accounts for 12% of GDP, will continue to support service exports thanks to a market that is constantly evolving with the integration of technological innovations. Although Malta does not import energy from Russia, its overall dependence on oil and natural gas imports, which account for the bulk of its energy supply (49% and 45% respectively), makes it vulnerable to global shocks.

A solid budgetary position despite a high budget deficit

Thanks in large part to its ongoing Individual Investor Programme (IIP, also known as the “golden passport” scheme), Malta has achieved a low-risk fiscal position that has been somewhat degraded in recent years by support measures to combat the pandemic and energy crises. This deterioration led to Malta being placed under the excessive deficit procedure by the European Commission in the summer of 2024. In addition, in September 2022, the Commission brought an action against Malta before the Court of Justice of the European Union on account of this programme. Its decision, which is expected in the first few months of 2025, could lead to the abolition or tightening of the programme. In Cyprus, only the “residence for investment” scheme remains. Losses to the budget could amount to 0.3% to 0.4% of GDP per annum. Despite pressure from the European Commission, the government will maintain energy subsidies for a fourth consecutive year. Nevertheless, falling energy prices should make the bill less onerous for the government, halving its cost compared with 2024, with an estimated budget of EUR 152 million in 2025 (0.7% of GDP), representing 20% of the budget deficit. Given the strong growth and the increase in social security contributions on back of the very high employment rate, tax revenue growth will remain sustained. However, the adjustment to the income tax brackets provided for in the 2025 budget should reduce revenues by around 0.5% of GDP.

Slightly in deficit in 2022 due to its dependence on energy imports, the prices of which had soared, Malta's current account quickly recovered as soon as prices moderated. In 2025, Malta should maintain its comfortable surplus thanks to the solid external position of its services (representing a surplus of around 30% of GDP), which has been strengthened by the rise in tourism receipts. In addition to discouraging investment, rule of law risks and suspicions of money laundering are also hampering the country's oversized financial sector (its assets represented 2.1 times GDP in 2023). In the event of large-scale sanctions, Malta would lose one of its most competitive industries. In addition, banks are significantly exposed to real estate and would be strongly affected by the abolition of the IIP owing to the corresponding decrease in foreign demand for domestic housing.

Political stability still marred by corruption

In March 2022, Prime Minister Robert Abela's Labour Party (LP) won its third consecutive election, securing 55% of the vote and 44 seats (including seats added for female representation) out of 79 in the unicameral legislature. It achieved stable results despite the government's alleged links to the 2017 murder of investigative journalist Daphne Caruana Galizia by associates of former prime minister Joseph Muscat (LP). Notwithstanding further upheaval, Abela's government is expected to remain in power until the end of its term in 2027. The threats to political stability stem from the risk of further allegations of corruption and the loss of public confidence in the ruling class. For the time being, these threats are latent and do not appear imminent. The European elections of 2024, however, suggested a change in the expectations of Maltese voters. Despite another victory for the LP with 45% of the vote, this significantly lower score compared to 2019 (54%) saw it lose one seat and now tie with the Nationalist Party (42%) with three seats.

The country's removal from the Financial Action Task Force's grey list on money laundering in 2022 is a sign of improvement in its fight against money laundering, but the country will remain in the European Commission's crosshairs on issues of transparency, corruption, tax evasion and the rule of law. In particular, the government's reluctance to abandon the Individual Investor Programme, even after the Commission's formal request, could damage its relations with Brussels and other EU member states regarding issues of security, money laundering, tax evasion and corruption. Furthermore, Malta's geographical location places it in the front line of migratory flows from Africa and Asia. Along with other host countries such as Greece and Italy, Malta’s stance will be key in European debates on the issue.

Last updated: January 2025