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MALTA recorded real GDP growth of 4% in 2025, with the European Commission fore- casting further expansion of 3.7% in 2026. Unemployment remains among the lowest in the EU, labour market partic- ipation continues to increase, and the public finances have improved considerably. These are genuine achievements that should not be underestimated but the Pre-Budget Consulta- tion Document for 2027 con- tains another, less reassuring story. Beneath the impressive head- line numbers, cracks are be- ginning to emerge in the pro- ductive capacity of the Maltese economy. They do not point towards an imminent crisis, but they raise fundamental questions about the sustaina- bility of our growth model and its ability to deliver lasting im- provements in living standards. The most revealing figures concern productivity. La- bour productivity, measured through real value added per employed worker, increased by 2.2% in 2023, slowed dramat- ically to just 0.2% in 2024 and contracted marginally by 0.1% in 2025. In several sectors, em- ployment expanded faster than real output. This is a significant development because produc- tivity ultimately determines an economy's capacity to gen- erate higher incomes without continuously increasing the re- sources it consumes. Malta has become exception- ally successful at expanding economic activity by adding workers, businesses, tourists, buildings and consumption. However, an economy cannot indefinitely improve prosperity simply by increasing its inputs. At some point, growth must increasingly come from pro- ducing more value with the re- sources already available. An even more revealing com- parison emerges when looking beyond GDP growth towards European productivity levels. In 2024, Malta's GDP per cap- ita, adjusted for purchasing power, stood at approximately 110% of the EU average. Yet output per hour worked on mainland Malta reached only 84% of the European average, falling to around 70% in Gozo and Comino. These indicators measure different aspects of economic performance and should not be interpreted as directly interchangeable. Nev- ertheless, the contrast is in- structive. Malta has achieved impressive levels of economic activity and income per in- habitant, supported by high employment participation and sustained expansion, without achieving equivalent produc- tivity per hour worked. It is precisely this distinction that should concern policymakers. Economic prosperity built on greater participation is valua- ble, but its capacity to deliver future improvements in living standards depends increasingly on productivity. The wage figures reinforce this concern. According to Eu- rostat, Malta's average annual full-time adjusted salary stood at approximately €33,499 in 2024, compared with €39,808 across the EU. Maltese sala- ries therefore remained around 16% below the EU average in nominal terms. This compar- ison does not account for dif- ferences in purchasing power or household circumstances, but it exposes an important challenge. Despite years of ex- ceptional economic growth, Malta has not translated its performance into equivalent levels of average remuneration. The objective should certainly be higher wages, but the ques- tion is how those increases can be sustained. Higher wages ul- timately require an economy capable of generating greater value per worker. Without that improvement, wage increas- es risk translating into higher prices, reduced profit margins or deteriorating competitive- ness rather than durable gains in purchasing power. The Pre-Budget Document provides evidence that this ten- sion is already becoming visi- ble. Nominal compensation per employee increased by 7.6% in 2024, while productivity grew by only 0.2%. In 2025, com- pensation increased by another 4.2% despite a marginal con- traction in productivity. Part of this development reflected public-sector collective agree- ments and related payments, and higher compensation is not inherently undesirable. Indeed, an economy aspiring towards higher-value activities must offer attractive remuneration. However, when compensation consistently increases faster than productivity, the cost of producing goods and services comes under pressure. This is reflected in Malta's real unit la- bour costs, which increased by 2.4% in 2024 and 2.8% in 2025, compared with EU increases of 1.54% and 0.6% respectively. Malta's recent cost compet- itiveness has therefore dete- riorated relative to the Euro- pean average, even though its longer-term position remains comparatively stable. Uneven productivity challenge What makes these figures par- ticularly interesting is that the productivity challenge is not uniform across the economy. Construction provides a strik- ing example. By 2025, its real unit labour cost index stood approximately 35 percentage points above its 2019 level, re- flecting successive productivity declines alongside rising labour costs relative to output prices. Real estate and arts and en- tertainment also experienced increases. By contrast, infor- mation and communication re- corded a remarkable improve- ment, with its real unit labour cost index approximately 23 percentage points below its 2019 level. Strong productivity gains in this sector more than compensated for rising wages. The contrast demonstrates that Malta does not have one ho- mogeneous economic model. Some activities are successful- ly generating additional value through technology, skills and organisational improvements, while others remain heavily de- pendent on expanding employ- ment and physical activity. This distinction matters be- cause it challenges the as- sumption that economic growth automatically reflects 18 maltatoday | SUNDAY • 18 OCTOBER 2026 OPINION JP Fabri The cracks beneath Malta's Economist According to Eurostat, Malta's average annual full-time adjusted salary stood at approximately €33,499 in 2024, compared with €39,808 across the EU