In the UK, the Office for National Statistics reported the consumer price index (CPI) had climbed to 3.6% year-on-year in June, higher than the 3.4% recorded in the previous month and more than that forecasted. Figures were mainly driven by transport and food costs.
The UK economy grew more than anticipated in the second quarter, according to official data. GDP rose by 0.4%, rebounding from a 0.1% decline in May and surpassing the forecast of 0.2%. All major sectors contributed to June’s growth, with services output increasing by 0.3%, industrial production increasing by 0.7%, reversing a revised 1.3% fall. Comparing these results with Germany, we notice that the latter reported its economy contracted slightly in both 2023 and 2024.
The car industry, Germany’s biggest, faces declining demand and rising Chinese competition. Mr Trump’s 25% tariffs on European car imports have added to its woes. Data from Eurostat released last month showed that industrial output fell 1.3% month on month, driven by a significant drop in Germany and weak consumer goods manufacturing. This exceeded expectations of a 1% decline.
Despite this, GDP grew 0.1% from the previous quarter, following a 0.6% increase in the first quarter, as per flash estimates from Eurostat showed. The figures were in line with the estimate published on 30 July. Year-on-year economic growth slowed to 1.4%, in line with estimate, from 1.5% in the prior quarter.
On 24 July, the Governing Council of the European Central Bank (ECB) decided to keep the three key interest rates unchanged. Accordingly, the interest rates on the deposit facility, the main refinancing operations (MROs) and the marginal lending facility will remain unchanged at 2%, 2.15% and 2.40%, respectively.
Notice how inflation is currently at the 2% medium-term target. Domestic price pressures have continued to ease, with wages growing more slowly. Partly reflecting the Governing Council’s past interest rate cuts, the economy has so far proven resilient overall in a challenging global environment. It is good to notice how service-oriented firms recorded the highest net share of companies reporting expansion, while the manufacturing, real estate and construction sectors also reported positive conditions.
By contrast, wholesale and retail sectors, meanwhile, reported overall negative conditions. One third (33%) of companies anticipated future short-term improvement in their business activities, a slight decrease of 35% seen in the last quarter. How thus such indicators compare with the ones recorded in Malta?
Its debt-to-GDP ratio is generally lower than the average for many EU countries, reflecting relatively moderate public debt levels compared to some larger EU economies. We are proud to announce that as of recent data (2023-2024), Malta’s debt-to-GDP ratio is approximately 50-60%. This level is considered moderate and below the EU’s Maastricht Treaty reference peak value of 60%, which is a benchmark for fiscal prudence. One hates to compare our debt situation with other EU countries, yet a number of countries have significantly higher debt-to-GDP ratios, namely – Greece: over 170%, Italy: around 140%, Portugal: approximately 120% and France and Spain: typically, between 90-110%.
Of course, there are a few countries with a low rate than us, such as Luxembourg, Estonia and Denmark. These three countries often have debt ratios below 40%. There is no consolation that our rate is hovering close to the 60% limit and of course the finance ministry is cautious to improve liquidity and reduce debt.
It is important to remember that over the past 25 years, our economy has transformed from a fortress-like model – reliant on tourism, burdened by high unemployment and dependent on low-value mass jobs in drydocks – into one characterised by full employment and strong fiscal management, resulting in a sustainable debt level. What is the secret of growing a stronger GDP? Ideally, this is driven by sectors like quality tourism, financial services, manufacturing, wholesale & retail and gaming.
Malta’s membership in the EU also helped as our government was encouraged to adhere to tighter fiscal rules and targets. In its next budget for 2026, the government must carefully prioritise infrastructure spending to balance debt sustainability with development needs. Malta’s debt position influences its eligibility for loans or grants from international financial institutions (IFIs) and the European Union. Sustainable debt levels improve the likelihood of receiving favourable financing terms or co-funding for infrastructure projects. Conversely, excessive debt without productive investment can strain public finances and reduce future investment capacity.
The island’s nominal debt trajectory has been on the upward path for years, particularly as a result of the Covid-19 pandemic and the various subsidies undertaken by Malta Enterprise and Indis. Critically though, growth in recurrent expenditure continues to outpace recurrent income implying that there is a structural deficit in place, which may be difficult to tackle. Construction and real estate businesses reported a “cautiously optimistic outlook” while wholesale and retail expectations were “negative on balance, amid heightened competition, price sensitivity and economic uncertainty”, the Central Bank said.
Naturally, even though the island is modest in size, yet it needs to keep abreast of development within its export markets. This means that positive developments in fiscal sectors within the Euro area such as controlled levels of inflation are crucial. In the euro area, inflation recently edged up to the European Central Bank’s 2% target. Confirming forecasts, final data from Eurostat showed the annual inflation moved up to 2% in June from 1.9% in May. These numbers were in line with the estimate reported back on 1 July. Let us discuss in detail the composition of the internal factors which arise from domestic inflation levels.
Core inflation index, which excludes energy and food, is balanced at 2.3%. Monthly growth of the index was 0.3%, matching the flash estimate. Energy prices fell to 2.6% year-on-year, a slower decline from that reached in May’s 3.6%. Prices for food, alcohol and tobacco rose to 3.1% from a 3.2% rise the previous month. Non-energy industrial goods prices gained 0.5%, following a 0.6% increase.
Meanwhile, services inflation increased to 3.3% from 3.2%. One applauds the administration on the fact that overall, local inflationary pressures have eased, with wage growth and moderate economic performance.
As backdrop, Robert Abela recently promised that the upcoming budget would be “the best budget in the country’s history”, saying it would “strengthen those who need help, support the middle class and improve workers’ conditions”, including a tax reduction for corporates – the lifeblood of the country’s revenue.
George M. Mangion is a senior partner at PKF Malta