Beyond More Workers and Tourists: Malta’s Productivity Choice

The choice behind the growth number

At the next Budget, the headline growth figure may look reassuring. The harder question is why the economy is growing. Malta can expand by adding workers, visitors, buildings and infrastructure, or it can increasingly produce more value from each unit of labour, capital, land and public capacity. The second route is harder, but it is the route most likely to support higher wages, stronger services and less pressure on limited infrastructure over time.

The European Commission’s 2026 Malta country report describes the direction of travel as a shift towards higher productivity and value creation, with less reliance on volume-driven expansion and greater emphasis on innovation, skills and higher-value activities. That is an institutional assessment and policy direction, not evidence that the transition has already been completed.

What the productivity evidence actually says

The long view is encouraging, but it should not be oversold. The Finance Ministry’s 2024 Economic Survey reported a 21.8% rise in aggregate real labour productivity between 2010 and 2023 and an average annual change of 1.9%, compared with 0.8% in the EU. The stated annual average is not the compounded rate implied by the endpoints: 21.8% over thirteen years corresponds to approximately 1.5% a year compounded. The survey also said Malta’s absolute productivity level remained below the EU average. Catch-up was real, but incomplete.

The more recent signal is less comfortable. In its assessment published on 13 May 2025, the Malta Fiscal Advisory Council said labour productivity had remained stagnant over the previous three years and was expected to remain unchanged in 2025, while compensation per employee was projected to rise by a further 5.0%. That was an assessment of forecast assumptions, not a final 2025 outturn, but it highlighted the risk of wages and unit labour costs rising faster than output per worker.

The public measurement base includes both persons and hours. Eurostat’s annual dataset includes Malta-specific real labour productivity per person employed and real labour productivity per hour worked, with data coverage through 2025 and a last update recorded on 21 September 2026. Eurostat also provides quarterly real labour productivity per hour worked, updated through the second quarter of 2026. These measures use different frequencies and should not be mixed casually, but output per hour is no longer an established evidence gap.

The distinction matters. Real productivity per person employed divides real output by employed persons; real productivity per hour divides real output by total hours worked. If average hours change, the two measures can move differently. Eurostat defines the hourly measure using real GDP in chain-linked volumes and total hours actually worked, so the article should report the indicator, frequency, reference period and any later revisions rather than presenting one number as the complete productivity story.

Where value is rising—and where volume still does the work

Information and communication is the clearest productivity-leading example in the available structural evidence. The European Commission links its performance partly to digital transformation and technology investment. But sector leadership does not mean that every firm or worker benefits equally, and technology adoption does not become a productivity gain simply because software has been purchased. Malta’s R&D intensity was 0.54% of GDP in 2024, against an EU average of 2.24%, suggesting that the innovation base remains relatively thin.

The Commission also identifies low investment, weak links between academia and business, limited uptake of support schemes, and shortages of scientific and digital skills as barriers. Malta’s 2025 Digital Decade profile reported that 81.3% of enterprises had at least basic digital adoption and 17.3% had adopted AI, while 63% of the population had at least basic digital skills. Those indicators refer to different observation years, and AI adoption is a capability measure—not proof of a measurable productivity effect.

The Finance Ministry’s Half-Yearly Report, dated July 2025, identified labour-intensive processes, wage pressures, labour shortages and a widening investment gap as domestic risks. It said labour remained the main contributor to potential output growth while productivity was expected to remain weak. That does not make worker growth undesirable; it means that adding people cannot be the only available growth mechanism if Malta wants greater resilience and higher value per unit of resource.

Tourism: more value, not merely more arrivals

Tourism shows why volume and productivity must be separated. NSO recorded 4,022,310 inbound tourists, 25.4 million nights and €3,904.4 million in expenditure in calendar year 2025. Total expenditure rose by 18.6%, while expenditure per visitor increased from €924 in 2024 to €971 in 2025. These are nominal expenditure figures. They are useful value-per-visitor indicators, but they are not the same as tourism-sector productivity and may reflect prices, visitor mix, longer stays or exchange-rate effects.

The practical policy question is whether Malta can earn more through better products, higher spending, longer stays and a stronger off-season while managing environmental and infrastructure costs. The Malta Fiscal Advisory Council recommended a recalibrated tourism approach that prioritises quality over volume and connects tourism with higher-value activity and environmental sustainability. That is a recommendation, not an operative Budget 2027 measure.

What Budget 2027 can realistically influence

Budget 2027 cannot legislate a productivity miracle. It can make productivity more likely by supporting technology adoption that changes how firms work, linking skills programmes to measured shortages and workplace application, strengthening research-business links, and testing whether grants produce additional investment rather than subsidising activity that would have happened anyway. The policy test is implementation: who receives support, what changes, and which measurable output improves afterward?

Public investment needs the same discipline. The Central Bank’s Outlook for the Maltese Economy 2026:3 projected real GDP growth of 3.6% in 2027 and said investment growth would moderate partly because all Recovery and Resilience Facility projects were expected to be completed by 2026. The Bank also projected total employment growth of 2.5% in 2027. These are conditional forecasts, not Budget 2027 decisions. The Budget should explain what replaces the EU-funded pipeline, how projects are prioritised and how their output will be measured.

Skills and technology also require complementary infrastructure. Faster digital services do little if small firms cannot integrate them, if staff lack the skills to use them, or if public systems do not share data reliably. Malta’s digital infrastructure and public-service digitalisation are relatively strong in the Commission’s assessment, but smaller enterprises and ICT skills remain constraints. The sensible approach is to measure adoption and workplace results together, rather than assume that an AI grant has already produced an economic return.

The least glamorous part may be the most important: measurable public-sector efficiency. A useful Budget would identify services where digital processes, procurement, data sharing or redesigned workflows can deliver more timely output per euro or employee. That measure must sit alongside service quality and access. Cutting inputs while queues lengthen is not productivity; it is simply a smaller numerator wearing a tie.

How households should judge the result

Productivity gains can support better wages and public services, but they do not guarantee either outcome. Distribution depends on bargaining power, competition, taxation, business investment and whether government converts higher output into capacity rather than mainly higher profits or asset values. A productivity-led strategy should therefore report real compensation per employee and unit labour costs alongside productivity, while showing who benefits and over what period.

Beyond headline GDP, readers should watch real GDP per capita; real labour productivity per person employed; real labour productivity per hour worked; real compensation; unit labour costs; private and public investment; R&D intensity; business technology adoption; tourism expenditure per visitor and per night; and public-service output per euro or employee. This is a proposed analytical scorecard, not an official single index. Each measure needs a clear denominator, comparable real or nominal basis, frequency and observation period.

Malta Vision 2050, announced on 8 April 2025, promised publicly accessible key performance indicators so the public could monitor progress. That remains an announced strategic commitment, not proof that a complete productivity dashboard exists or that its targets have been delivered. Budget 2027 should make the indicators concrete: define them, publish the baseline, identify the responsible institution and report progress against comparable periods.

The verdict is mixed. Malta has recorded substantial long-term productivity growth, a strong digital base in parts of the economy and rising nominal tourism expenditure per visitor. But recent productivity weakness, low R&D intensity, labour-intensive processes and investment concerns point to a choice still being made rather than a transition already completed. Budget 2027 will be more credible if it attaches money to measurable capability and makes it possible to see whether more growth is producing more value—or simply requiring more of everything.

A practical Budget 2027 productivity scorecard