The Central Bank’s latest Quarterly Review provides a good economic snapshot, highlighting both current operating conditions and deep-seated structural challenges that Maltese family businesses must address to secure their future. For sectors traditionally dominated by family enterprises—such as manufacturing, construction, accommodation, and food services—the report’s findings on labour, productivity, and financing are particularly important.

The review’s analysis of Malta’s exceptional employment growth confirms a fundamental structural challenge: a massive reliance on foreign labour and a simultaneous ageing of the local workforce.

Structural Shifts and Foreign Dependency:

• Exodus from Traditional Sectors: Maltese workers are increasingly shifting away from traditional family business sectors—like manufacturing, construction, tourism, catering, and retail—towards higher-paying industries like remote gaming, information technology, financial, and professional services.
• Sectoral data shows that the overall economic expansion is currently being driven by the services sector, with the information and communication sector being the main contributor to growth. This demonstrates that high-tech, high-GVA sectors are flourishing.
• Sectoral Reliance: This trend means family businesses in traditional sectors are highly dependent on foreign workers. For instance, the demand for foreign workers has been a major driver in the accommodation and food services sector, where any expansion in demand is highly likely to result in more foreign inflows. Dependence on foreign workers has also increased greatly in the manufacturing and construction sectors.
• The Way Forward: Activating Older Workers: While Malta has one of the highest employment rates for those under 50, it still has the third-lowest rate for the cohort aged over 50. Activating this important segment is a key element for future local labour supply. However, this cohort’s lower educational attainment is often a mismatch with current business demands, making significant investment in training and upskilling vital to prevent this pool of labour from lying under-utilised.

Cost Pressures and Productivity

Family businesses must focus on managing costs and improving efficiency given the following pressures:

• Rising Unit Labour Costs (ULC): .Malta’s Unit Labour Cost (ULC) index, measured on a four-quarter moving average basis, rose at an annual rate of 7.4% in the second quarter of 2025. This followed an increase of 6.1% in the previous quarter. Critically, this steep pick-up in ULC growth is mainly due to a fall in productivity. Labour productivity per person contracted by 0.1% in annual terms, after having grown by 1.0% in the first quarter. While the growth in compensation per employee increased only slightly to 7.3% , the combination of this wage growth with shrinking output per worker creates a difficult scenario: businesses are paying substantially more for each unit of output produced. In effect, for family businesses, the cost of labour is rising at a pace that is likely unsustainable because the output generated by that labour is declining. This immediately makes Maltese enterprises less competitive.

• Inflationary Pressures: Annual inflation (HICP and RPI) increased to around 2.5% and 2.4% respectively, with price movements in the hospitality sector and food prices playing an important role in driving the increase. This affects both operating costs and consumer spending.

• Technological Disruption: Looking ahead, while automation is not expected to displace many jobs in sectors like accommodation and food services, digital developments are likely to affect the future demand for workers in administrative support roles, which is a category commonly held by foreign workers. Family businesses must adapt their operations in administrative and back-office functions to prepare for this change.

On the financing front, credit growth to Non-Financial Corporations (NFCs)—a category where most family businesses fall—moderated, with loans growing at an annual rate of 3.7% in the year to June 2025, down from 4.7% three months earlier. The increase in loans to NFCs was largely driven by increased lending to the accommodation and food services sector, indicating that this sector continues to have significant investment or operational financing needs.

For family businesses in Malta, the path ahead should focus on the below:

• Structural Labour Management: Mitigating the reliance on foreign labour by investing in the training and upskilling of present workers and even older workers. This is the most crucial long-term strategy for labour supply. Family businesses, particularly in traditional sectors, must invest in upskilling their existing local workforce (including older workers) to move them into higher-value activities. This is critical for improving the quality of output, justifying rising compensation costs, and eventually hopefully reversing the ULC trend.

• Productivity and Efficiency: Actively managing the rise in Unit Labour Costs by focusing on boosting productivity across all operations to reverse the negative trend identified in the review. .The immediate response must be accelerated investment in technology and digital solutions, especially in back-office and administrative roles. With the labour tightness indicator (the ratio of job vacancies to unemployment) standing at 1.1—significantly higher than the euro area’s 0.3—the pressure to secure staff and offer higher wages will persist. Technology adoption is necessary to ease this market pressure and ensure a future workforce that is focused on high-value tasks, rather than volume.

In conclusion, the Central Bank’s quarterly review signals that the family business model based on large headcount and relatively low-skill roles is facing an immediate economic ceiling due to falling productivity. The only viable path forward is a strategic commitment to digitalisation, upskilling, and a focus on maximizing value generated by each employee.