PwC Malta’s Economic Outlook

Malta’s fiscal outlook reflects a steady path toward reducing the government deficit, expected to fall from 4.5% in 2025 to the target of 3.0% by 2026. Although Malta's debt-to-GDP ratio is set to increase modestly, reaching 50.1% in 2025, it remains well below the Euro Area average and the Maastricht threshold of 60%, indicating sound fiscal discipline amid ongoing economic growth. Government debt is projected to rise from €9.8 billion in 2023 to €13.5 billion by 2027, driven by investments in infrastructure and public services. Despite this increase, Malta’s debt burden is balanced by robust GDP growth, projected to expand from €20.7 billion in 2023 to €27.4 billion by 2027. Interest payments, although rising, remain manageable at around 1.1% to 1.4% of GDP over the forecast period. Revenue from taxes and VAT is expected to grow, reflecting effective revenue collection, even with proposed tax band adjustments. Expenditures, primarily in recurrent spending, are projected to align closely with revenue growth, indicating prudent budget management. While the government remains optimistic about achieving a 4% annual GDP growth rate, the fiscal trajectory is sensitive to economic shifts. Should growth fall below projections, deficit targets may be impacted, underscoring the importance of ongoing economic resilience amid global uncertainties.

Global growth slows significantly with major economies expected to narrowly avoid officially entering recession, as interest rates continue to climb… Overall, the global economy is set to grow by 1.6% in 2023, driven largely by China’s re-opening following a prolonged period of lockdowns and strong expected growth in India and other emerging economies. Following a strong performance in 2022, The US economy is expected to narrowly avoid a recession in 2023, with our firm projecting GDP growth at 0.2% for the world’s largest economy. Meanwhile, mild contractions in economic activity in the UK and some major EU economies such as Germany and Italy.

Inflation reaches record highs in Europe and America, driven by both cost-push and demand-pull factors…. Inflation in the Euro Area reached 8.6% in June, something that we have not seen in Europe since the 1980s and a record high since the Euro area was formed. The two general causes of inflation are cost-push and demand-pull inflation. In this case, the global economy is experiencing a strong mix of the two, which is partly why we are seeing such high numbers. On the one hand there are the demand side issues, stemming from the recovery of the pandemic. This created a situation of pent-up demand, building up over periods of lockdowns, that led to savings being spent in a shorter time frame and on fewer available goods and services due to slowdowns in production. Furthermore, in order to combat the decline in economic activity caused by the pandemic, central banks eased monetary policy in 2020. The Federal Reserve in the US lowered interest rates from 1.75% to 0.25% and the ECB maintained its asset-buying, thereby pumping in lots of liquidity into the market. This made it easier for consumers and businesses to take loans and stimulate economic activity, which lead to a situation of “too much money chasing too few goods”, which was Milton Friedman’s definition of what inflation really is.