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19 LOOKING BACK 2025 maltatoday | SUNDAY • 28 DECEMBER 2025 JP Fabri Economist A year of growth, and questions Malta can no longer avoid IF 2025 taught us anything, it is that economic strength and eco- nomic comfort are not the same thing. Malta ended the year with growth that many European peers can only envy, low unem- ployment, resilient tourism, and continued momentum in servic- es. On the surface, the numbers told a reassuring story. Beneath it, however, a more complex pic- ture emerged, one that demands interpretation. Globally, 2025 was marked by uncertainty layered upon uncer- tainty. High interest rates lin- gered longer than expected, ge- opolitical tensions continued to reshape trade and energy flows, and the global economy settled into a pattern of cautious expan- sion rather than recovery-led dynamism. Europe, in particu- lar, struggled to reconcile am- bition with execution. Reports diagnosed competitiveness gaps, productivity shortfalls, and in- vestment weaknesses, yet policy responses remained incremental. Growth was present, but fragile. Confidence existed, but uneven. Against this backdrop, Mal- ta performed well. Activity re- mained above historical norms, employment continued to ex- pand, and domestic demand proved resilient. Tourism re- covered not just in volumes, but increasingly in expenditure. Financial services, gaming, and professional services continued to anchor economic activity. In a year when many economies slowed sharply, Malta kept mov- ing. But economic analysis is not about asking whether an econo- my is growing. It is about asking how it is growing, why it is grow- ing, and at what cost. One of the defining features of Malta's 2025 performance was the continued reliance on labour-intensive growth. Em- ployment gains remained strong, supported in large part by in- flows of foreign workers. This helped sustain output, stabilise the pension system through con- tributions, and support sectors facing chronic labour shortages. In the short term, this worked. In the medium term, it raises struc- tural questions. Growth driven primarily by labour expansion rather than productivity gains eventually runs into limits. Infrastructure strains, housing pressures inten- sify, transport systems clog, and quality-of-life indicators lag be- hind headline GDP. The debate, therefore, should not revolve around population size in iso- lation. The real issue is wheth- er our systems are evolving fast enough to absorb growth intel- ligently. Here, 2025 revealed some un- comfortable truths. Capital ex- penditure remained subdued relative to the scale of economic expansion. Recurrent spending continued to rise, while trans- formative investment strug- gled to keep pace. Roads, public spaces, infrastructure, and ener- gy systems increasingly looked misaligned with the size and complexity of the economy they were meant to serve. Growth outpaced planning. At the same time, productivity signals remained mixed. While certain high-value sectors per- formed well, broader productivi- ty growth remained modest. This gap between economic expan- sion and productivity deepening is not a statistical curiosity. It is the difference between growth that raises wages sustainably and growth that merely sustains em- ployment. Yet 2025 was not a year without course correction. There were signs of institutional learning. Tourism policy began to shift away from volume and towards value. Regulatory changes sig- nalled a willingness to protect communities and housing mar- kets from excesses. Discussions around transport, education reform, and skills development became more explicit, if not yet fully resolved. Perhaps most importantly, 2025 marked a growing recogni- tion that Malta's growth model is not broken, but it is maturing. What worked in the past dec- ade will not automatically work in the next. The challenge is no longer to ignite growth, but to shape it. This is where the broader glob- al context matters. Across Eu- rope, the lesson of recent years has been that growth without direction leads to stagnation disguised as stability. Competi- tiveness is not lost overnight. It erodes slowly, through underin- vestment, policy fragmentation, and reluctance to take long-term decisions that stretch beyond electoral cycles. Malta has an opportunity to avoid that fate precisely because it still has momentum. But mo- mentum must be converted in- to intentional transition. That means shifting the focus from expansion to value creation, from volume to productivity, and from short-term fixes to long- term capability building. Education, skills, and human capital are central to this transi- tion. A labour market that relies increasingly on imported skills without simultaneously upgrad- ing domestic capabilities risks hollowing itself out. Equally, an education system that does not align with evolving econom- ic needs becomes a bottleneck rather than a driver of growth. 2025 made clear that reform here is not optional. It is foundational. So too is governance. Economic performance cannot be divorced from institutional quality. Plan- ning systems, regulatory certain- ty, public sector capacity, and policy coherence all influence whether growth compounds or dissipates. In a world defined by what many now call a "permac- risis," resilience is built through institutions that can think long- term, coordinate across silos, and adapt without panic. Looking back at 2025, Malta can reasonably say it navigated a difficult global environment better than most. But the year al- so exposed the limits of a model that leans heavily on labour ex- pansion, property-driven capital allocation, and rising recurrent expenditure. The IMF's Article IV con- sultation captured this duality well. Malta, it noted, continues to benefit from strong labour market dynamics, high inward migration, and diversified servic- es exports. At the same time, it warned that growth has become increasingly input-driven rather than productivity-led, and that fiscal policy, while not alarming, is drifting away from where a fast-growing economy should be heading. This is a crucial point. A country growing at rates consist- ently above its peers should, in theory, be rebuilding buffers, not normalising deficits. The real test of 2025 will not be found in year-end growth fig- ures, but in whether it catalyses a more serious conversation about transition. The story of 2025 is one of inflection. The economy has bought time through growth. The question is whether that time will be used to build the foundations for the next phase. That is the conversation that 2026 must confront. Malta Freeport (File photo) One of the defining features of Malta's 2025 performance was the continued reliance on labour- intensive growth