Malta’s post-pandemic boom is finally losing steam. The Central Bank of Malta’s latest forecasts show the economy shifting to a slower gear over the next three years, but the island’s job market remains one of the tightest in Europe.

According to the Bank’s projections, GDP growth will fall from 5.9% in 2024 to 3.9% in 2025, and continue easing to 3.5% in 2026 and 3.3% in 2027. The outlook is broadly unchanged from earlier forecasts, though the downgrade for 2025 underlines expectations that the breakneck pace of expansion seen in recent years is unsustainable.

Consumption still driving the economy

The slowdown doesn’t mean Malta is grinding to a halt. Private consumption is set to remain the economy’s main engine, as households continue to spend, albeit at a less frantic pace than before. Investment will also support growth, particularly in the next two years, while services exports – from tourism to iGaming – will add a positive, though smaller, contribution.

Put simply: Malta is still growing faster than most of Europe, but the days of six per cent growth are over.

Employment remains strong

What’s striking is that the labour market shows almost no sign of weakness. The Bank expects employment growth to moderate from 5.3% in 2024 to 3.0% in 2025, before settling at 2.4% and 2.3% in the following two years. Even with the slowdown, unemployment is projected to edge down to 2.7% by 2027 – among the lowest rates anywhere in the EU.

This tightness will keep wage pressures alive, though the Central Bank notes that falling inflation and the need to preserve competitiveness will limit increases. After rising 6.3% in 2024, wages are expected to grow 4.4% in 2025, and then ease further to 3.7% and 3.5%.

Inflation cooling

Price growth is also heading in the right direction. Annual inflation, as measured by the Harmonised Index of Consumer Prices, is forecast to dip from 2.4% in 2024 to 2.3% in 2025, and continue falling to 2.1% and 2.0% in 2026 and 2027. That drop is largely due to lower food and services inflation, though the Bank warns that global trade tensions and geopolitical shocks could push costs up again.

Public finances slowly improving

On the fiscal side, the Bank sees steady progress. The government deficit is projected to shrink from 3.7% of GDP in 2024 to 3.4% in 2025, narrowing further to 2.6% by 2027. Debt will peak at 48.7% in 2026 before edging slightly lower.

That said, risks remain. Any renewed spending on energy subsidies, higher pensions or wage hikes could push the deficit higher, while global shocks could weigh on exports. On the upside, stronger wage and employment dynamics could lift private consumption, offsetting weaker foreign demand.

A new phase for Malta’s economy

The Central Bank’s forecast makes clear that Malta is entering a more sustainable, balanced phase of expansion. The boom years are fading, but with jobs plentiful, inflation cooling and the deficit narrowing, the island still stands out as a relative bright spot compared to much of Europe.

For businesses and workers alike, the message is simple: growth is slowing, but Malta’s fundamentals remain solid.