Annual real Gross Domestic Product (GDP) rose at a faster pace during the second quarter of 2026 when compared with the preceding quarter, with growth being driven by domestic demand, even after adjusting for imports.

The Central Bank of Malta published its quarterly review on economic developments, and said that in Q2 it rose by 4.5 per cent, following a 4.2 per cent increase in the preceding quarter.

Growth was driven by domestic demand, even when adjusting for imports

The Central Bank said that the pace of economic expansion remained above that in the euro area.

The Bank's Business Conditions Index moderated compared with the first quarter, indicating that the pace of economic activity during the second quarter remained broadly in line with its long-run average.

During the second quarter of 2026, the labour market continued to perform positively, with activity and employment rates rising and standing above those in the euro area. The unemployment rate increased from a year earlier but remained well below that in the euro area.

The report notes that the Labour Force Survey data shows that in the second quarter of 2026, the labour force grew by 13,356 persons, or 4 per cent on an annual basis, following a 3.4 per cent increase in the previous quarter.

Employment rose by 3.4 per cent in annual terms, following a rise of 3.3 per cent in the previous quarter. “The increase in absolute terms was driven by higher full-time employment within the sectors comprising information and communication, the administrative and support service activities and the real estate activities.”

In the second quarter of 2026, the overall employment rate increased to 80.1 per cent.

“Labour market conditions remained tight but showed some signs of moderation, with both the vacancy rate and the labour market tightness indicator decreasing.” In absolute terms the number of vacancies remained broadly unchanged from a year earlier at 9,619. However, it declined when compared with the previous quarter, during which there were just over 10,000 vacancies registered.

The largest year-on-year increases in vacancies were observed in the sectors comprising wholesale and retail trade, transport, accommodation and food service activities, construction and manufacturing, quarrying and other industry, it said.

Consumer price inflation moderates

Consumer price inflation moderated during the second quarter of 2026.

Annual HICP inflation declined to 2 per cent in June from 2.3 per cent in March, while HICP inflation excluding energy and food also decreased, standing at 2.2 per cent in June from 2.4 per cent previously. Both headline HICP inflation and HICP excluding energy and food stood below the euro area average.

Housing

The report notes that the National Statistics Offie’s Residential Property Price Index (RPPI) – which is based on actual transactions involving apartments, maisonettes, and houses – continued to increase at a robust pace.

The annual rate of change remained broadly unchanged at 6.9 per cent in the second quarter of 2026. Meanwhile, in the euro area prices on average increased at an annual rate of 4 per cent.

Deficit-to-GDP ratio

When measured on a four-quarter moving sum basis, the general government deficit-to-GDP ratio rose to 3.5%, from 3.1% in the first quarter of 2026

Meanwhile, the debt-to-GDP ratio increased from the previous quarter but remained well below the corresponding average in the euro area, it said. “The general Government debt-to-GDP ratio stood at 47 per cent, higher than the 45.7 per cent ratio recorded a quarter earlier.”

In response to the inflationary pressures generated by the war in the Middle East, the Governing Council has tightened the monetary policy stance by raising the three key European Central Bank (ECB) interest rates by 25 basis points in both its June and September meetings.