A concise overview designed to help you navigate key information with confidence

Business decisions are shaped by a combination of economic conditions, consumer behaviour, labour market dynamics and external market trends. Understanding how these factors interact is essential for organisations seeking to sustain growth, protect profitability and strengthen operational efficiency in an increasingly competitive environment.

The Central Bank of Malta’s latest Outlook for the Maltese Economy 2026:3, published on 20 August 2026, points to continued economic growth, supported by sustained consumer demand, a strong labour market and continued export activity. At the same time, persistent services inflation, a competitive labour market and moderating export growth are likely to influence business performance and profitability.

The following analysis draws on the projections for the next three years published in the report.

GDP growth remains positive despite some moderation

Malta’s economic growth is projected to remain strong over the forecast horizon, although the pace of expansion is expected to moderate slightly.

From 4.0% in 2025, GDP growth is projected to decline to 3.8% in 2026 and 3.6% in 2027, before returning to 3.8% in 2028.

This reflects slower growth in private consumption, investment, exports and employment compared with previous years, although these components are still expected to make positive contributions to economic activity.

Inflation eases from Q2 projections but cost pressures persist

Annual Harmonised Index of Consumer Prices (HICP) inflation is projected to decrease to 2.2% in 2026, reflecting a decline in food inflation. This remains slightly above the European Central Bank’s 2% medium-term inflation target.

Inflation is set to increase to 2.4% in 2027, due to inflationary pressures arising from the geopolitical situation in the Middle East, before easing again to 2.2% in 2028.

Compared with the Bank’s previous forecast publication, overall HICP inflation has been revised down by 0.2 percentage points in 2026 and 0.1 percentage points in 2027.

Non-energy Industrial Goods (NEIG) inflation is expected to moderate to 0.7% in 2026, before increasing to 1.2% in 2027 and easing slightly to 1.1% in 2028.

Services inflation is expected to remain above its historical average. This indicates that businesses may continue to face elevated costs for labour-intensive inputs such as professional services, transport, logistics, maintenance, hospitality and outsourced activities.

However, the projected gradual slowdown suggests that cost increases should become less severe over time, improving cost predictability and potentially easing pressure on operating margins. Energy prices are expected to remain broadly unchanged over the forecast period, supported by the Government’s policy of maintaining stable energy tariffs.

Although inflation is projected to ease over the forecast horizon, businesses are likely to continue facing cost pressures from both goods and services. Those with significant exposure to imported inputs may also remain vulnerable to supply chain disruption and cost volatility arising from geopolitical developments.

Consumer spending remains resilient but selective

Private consumption growth is set to rise to 4.3% in 2026 and remain slightly above 4% in both 2027 and 2028. Compared with the Central Bank’s previous projections in June, private consumption growth has been revised upwards by 0.1 percentage points in 2026.

Private consumption is expected to benefit from recent adjustments to income tax brackets, which should increase household disposable income while also supporting higher levels of savings.

This suggests that private consumption is likely to remain resilient. However, households are also projected to increase their savings, indicating a degree of continued financial prudence.

While the household saving ratio was not included in the Central Bank of Malta’s third outlook for the year, the previous report projected the ratio to rise from 20.2% in 2025 to 21.0% in 2027, before easing slightly in 2028.

Although households may therefore have more disposable income available for spending, consumer behaviour is likely to remain cautious and selective. Higher household incomes may not translate evenly into increased demand across all sectors, as consumers continue to prioritise spending in particular categories.

From a commercial perspective, profitability is therefore likely to remain closely linked to procurement efficiency, supplier performance and operational productivity. Maintaining quality while improving efficiency and benefiting from economies of scale will become increasingly important in a competitive business environment.

A tight labour market continues to influence business costs

Labour market conditions are projected to remain robust, supported by sustained demand for labour. However, employment growth is expected to moderate over the forecast horizon due to slower economic expansion and improvements in productivity.

Recent labour migration policies are also expected to contribute to a slower rate of foreign worker inflows.
As a result, employment growth is projected at 2.9% in 2026, following 4.1% in 2025, and is set to moderate gradually to 2.3% by 2028.

Compared with the Central Bank’s previous projections in June, the unemployment rate for 2026 has been revised upwards by 0.5 percentage points to 3.4%, with the same rate projected for 2027 and 2028. This indicates a moderation in labour market growth rather than a decline in employment levels.

Rising labour costs and sustained competition for talent are expected to increase pressure on operating margins, particularly in labour-intensive sectors. Labour availability is therefore likely to remain an important operational consideration.

These conditions may encourage further investment in technology, automation and process improvement initiatives aimed at supporting productivity growth. Technology investment affects financial performance differently from workforce expansion, as it generally involves greater capital expenditure and depreciation costs rather than recurring employee expenses. More broadly, technology adoption can help support productivity alongside investment in capital and labour.

Export growth moderates amid rising competitive pressures

Exports are projected to continue growing over the forecast period, although the pace of growth is expected to moderate from 4.5% in 2025 to 4.3% in 2026 and 3.5% in 2027, remaining at that level in 2028.

This slowdown reflects weaker growth in external demand and a normalisation of services exports following several years of strong performance. Nevertheless, export growth is still expected to outpace foreign demand, supported in part by the continued strength of Malta’s tourism sector.

The moderation in export growth suggests that revenue growth assumptions may become increasingly dependent on sector-specific conditions rather than broad-based economic expansion.

Goods exports are set to recover slightly in 2026 following a strong decline in 2025. Growth in goods exports is expected to remain below projected growth in external demand in subsequent years, in line with recent trends and increasing competitive pressure outside the EU.

This may challenge the ability of local firms to expand their international market share and maintain pricing power.

Investment activity strengthens growth prospects

Gross Fixed Capital Formation (GFCF), the standard measure of investment activity within an economy, is projected to increase by 5.7% in 2026 before moderating to 1.4% in 2027 and recovering to 3.6% in 2028. This follows weak growth of just 0.2% in 2025.

The recovery is expected to be supported by both private sector investment and government infrastructure projects, including initiatives financed through the Recovery and Resilience Facility.

Private investment is expected to strengthen following a decline in 2025, while government investment is projected to increase significantly in 2026, partly reflecting higher spending on RRF-financed projects and other major infrastructure initiatives.

Investment activity in the Maltese economy is therefore expected to remain positive over the forecast horizon, although at a more moderate pace after 2026.

Turning economic trends into business decisions

The Central Bank of Malta’s latest projections point to an economy that continues to expand, supported by steady consumer spending, positive investment activity and continued export growth.

At the same time, businesses are expected to operate in an environment characterised by persistent services inflation, continued labour market pressures and moderating external demand. These factors are likely to influence costs, profitability and investment decisions across a range of sectors.

As organisations respond to these conditions, greater emphasis may need to be placed on improving productivity, strengthening operational efficiency and evaluating investments that support long-term performance.

The projected recovery in investment activity, together with continued pressure on labour availability and operating costs, also highlights the growing importance of capital expenditure, technology adoption and process improvement in supporting sustainable growth.

RSM Malta’s Financial Advisory team helps organisations evaluate risks, quantify opportunities and assess the impact of changes in costs, revenues, investment requirements and market dynamics. Through financial modelling, scenario analysis, capital budgeting, feasibility assessments and business performance reviews, we support businesses in translating economic trends into informed strategic decisions and long-term value creation.

To discuss how the changing economic outlook may affect your organisation’s growth, investment or financial planning, contact RSM Malta’s Financial Advisory team.

Article written by Sabrina Sacco- Intern, Financial Advisory