Economy slowing as debt forecasted to rise further – Central Bank

Malta’s economy is slowing down while the island’s surging debt levels are expected to continue rising over the next two years, a new economic forecast issued by the Central Bank states.

As the country is debating whether it should change its current economic model, based primarily on the importation of cheap labour from third countries and population growth, the Central Bank said Malta’s GDP growth this year is expected to reach only half of the island’s economic activity when compared to 2022.

The Central Bank said that according to its latest forecasts, Malta’s gross domestic product is expected to reach 3.7% this year, much lower than the 7% registered in 2022.

This downward trend is expected to persist through the next two years, with the Central Bank forecasting a 3.6% growth for 2024 and 2025.

This is a lower forecast than that made by Finance Minister Clyde Caruana in the last budget, who said that the ministry expected a GDP growth of 3.9% in 2023 and 4.1% in 2024.

The Central Bank noted that its forecasts mark a downward revision compared to previous forecasts.

“In 2023, net exports are expected to be the main contributor to GDP growth, while domestic demand is expected to lower growth due to a base effect from extraordinary investment in 2022, which offsets positive contributions from consumption. From 2024, domestic demand is expected to be the main driver for growth”.

While the growth of the annual deficit is forecasted to slow down, although marginally, the island’s massive debt is expected to continue to grow.

Already expected to reach some €9.2 billion by the end of this year – a record – the new Central Bank forecasts show another rise in 2024 (54.5% of GDP) and 2025 (54.8% of GDP).

The most significant increase in the country’s debt was registered in the past three years, with the Robert Abela administration increasing it by more than €3.5 billion.

The Central Bank warned that the deficit and debt levels could increase further due to “additional support measures related to Air Malta and higher than expected outlays on electricity distribution and compensation for blackouts”.