Issue link: https://maltatoday.uberflip.com/i/1542372
15 LOOKING FORWARD 2026 maltatoday | SUNDAY • 4 JANUARY 2026 JP Fabri Economist Time to move beyond the comfort zone THE year ahead will not be de- fined by a single shock or a sin- gle crisis. It will be shaped by the cumulative weight of unresolved tensions, fragile balances, and delayed decisions. Globally, the world economy is entering a phase marked less by momentum and more by uncertainty. Growth is slowing, inflation has proven stubborn, geopolitical risks remain elevat- ed, and financial conditions are tight. The era of cheap money, frictionless trade, and predicta- ble cycles is firmly behind us. In this context, Malta enters 2026 in a position that is both enviable and precarious. Envia- ble because it has recorded years of strong headline growth, high employment, and relative resil- ience compared to much of Eu- rope. Precarious because much of that growth has been driven by volume rather than value, by ex- pansion rather than productivi- ty, and by short-term responses rather than long-term design. Internationally, there is in- creasing recognition that the global economy may be heading into one of three broad scenar- ios: A soft landing that stabilis- es but does not reaccelerate; a prolonged period of stagnation punctuated by volatility; or a re- newed shock triggered by geo- politics, financial stress, or policy error. None of these scenarios favour small, open economies that rely heavily on external de- mand, imported labour, and nar- row growth engines. All of them reward economies that are pro- ductive, adaptable, and institu- tionally strong. Europe wrestles with its contradictions Europe, meanwhile, continues to wrestle with its own contra- dictions. It speaks the language of competitiveness and strate- gic autonomy, yet remains con- strained by rigid fiscal frame- works, slow decision-making, and fragmented policy execu- tion. Reports diagnosing Eu- rope's challenges are plentiful and often accurate, but delivery remains uneven. The result is a continent that knows what it must do, but struggles to align its institutions, incentives, and poli- tics to do it at scale. Malta sits squarely within this European reality, but with its own distinct constraints. Its small size amplifies both suc- cesses and mistakes. Policies that work can deliver outsized gains, but structural weaknesses can al- so accumulate quickly. The com- ing year therefore represents a critical inflection point—wheth- er Malta continues to extract growth from an overstretched model, or whether it begins a deliberate transition towards a more balanced, value-driven economy. Recent international assess- ments underline this tension. Malta's economy continues to grow faster than the European average, yet public finances are under strain, recurrent expend- iture is rising faster than capital investment, and productivity growth remains subdued. La- bour shortages persist despite record employment, reflecting not a lack of jobs but a mismatch between skills, sectors, and in- centives. These are not signs of an economy overheating, but of one stretching its existing model to its limits. At the heart of this challenge lies a simple truth. Sustainable prosperity cannot be built on vol- ume alone. Adding more work- ers, more construction, more traffic, and more pressure on land and infrastructure eventu- ally delivers diminishing returns. It inflates costs, erodes quality of life, and suppresses wage growth. The data already show that, de- spite strong employment, aver- age earnings adjusted for pur- chasing power remain below the euro area average and far behind Europe's top performers. This gap is not a matter of effort; it is a matter of productivity. The illusion of safety created by the property market plays a cen- tral role in this dynamic. Rising property values have absorbed capital, talent, and policy atten- tion for years. They have offered seemingly predictable returns, but at a hidden cost. Capital tied up in land and concrete is capital not invested in skills, technology, research, or enterprise. A housing market that outpaces incomes also dis- torts labour mobility, discourag- es family formation, and pushes wage demands into sectors that cannot absorb them through productivity gains. What ap- pears stable on the surface quiet- ly undermines the foundations of long-term growth. Education as an economic strategy If Malta is to move decisively from volume to value, educa- tion must sit at the centre of that transition. Not as an abstract aspiration, but as an economic strategy. Higher productivity is not imported; it is built. It comes from skills that match industry needs, from technical compe- tence, from problem-solving ca- pacity, and from lifelong learning systems that allow workers to adapt as sectors evolve. Yet Malta's education system still reflects an older econom- ic structure. Progression into post-secondary education has improved, but early school leav- ing remains a concern, basic proficiency gaps persist, and par- ticipation in lifelong learning re- mains uneven. Too many young people disengage not because they lack ability, but because learning feels disconnected from opportunity. This is where new models become necessary. The concept of studio schools offers a practical response to this gap. Small, sector-linked learn- ing environments that blend academic foundations with re- al-world projects, work place- ments, and transversal skills can re-engage learners and align ed- ucation with economic needs. They allow students to see the relevance of what they are learn- ing, to build confidence, and to transition smoothly into em- ployment or further study. In a small country like Malta, such models can be piloted, evaluated, and scaled more quickly than in larger systems. This is not about abandoning traditional education, but about complementing it with pathways that reflect the economy Malta wants to build, not the one it in- herited. An economy that aspires to higher wages, better jobs, and greater resilience must invest in people with the same seriousness that it invests in infrastructure. Vision 2050 The launch of Vision 2050 of- fers an opportunity to frame this transition coherently. If it is to be more than a document, it must articulate not just targets, but choices. It must acknowledge that the next phase of growth will be harder, slower, and more contested than the last. It must prioritise quality over quantity, productivity over expansion, and long-term capability over short- term comfort. This requires political maturity. It requires accepting that some decisions will be unpopular, that some incentives must change, and that some sectors will need to adapt rather than expand. It requires cross-party align- ment on core economic direc- tions, so that businesses, work- ers, and institutions can plan with confidence beyond elector- al cycles. The coming year will test whether Malta is ready for that shift. The global environment will not provide easy tailwinds. Europe will remain cautious and constrained. The margin for er- ror will narrow. But within these constraints lies an opportunity to begin the transition deliber- ately, before external pressures force it abruptly. The choice facing Malta is not between growth and restraint. It is between shallow growth that exhausts its foundations, and deeper growth that renews them. The year ahead will not decide everything, but it will reveal whether the country is prepared to move from extracting value to creating it. The year ahead will not decide everything, but it will reveal whether the country is prepared to move from extracting value to creating it