I still meet business owners and leaders who are detached from the reality surrounding them. They still think that they can grow the business by employing more people while not concerning themselves with having efficient processes supported by digital systems. A few weeks ago, the Central Bank of Malta (CBM) issued its latest Business Dialogue and whilst reading it, it becomes obvious, that businesses in Malta are entering a transition phase. While current economic conditions are still relatively strong , a more cautious outlook for 2026 suggests that the “easy growth” period is moderating.

Overall, while the the period of acute, pandemic-related cost shocks has ended, businesses must now manage a “new normal” where operating costs remain structurally higher. The report clearly outlines that selling price increases are at a four-year low (31%) , indicating businesses are finding it harder to pass increased costs to consumers. This highlights the importance on focusing on internal efficiency rather than just price hikes. On the other hand, while global shipping has stabilised, shipping costs are still influenced by geopolitical rerouting around the Red Sea and the EU Emissions Trading System (ETS) extension. From all economic sectors in Malta, the manufacturing sector is particularly exposed to high input costs and muted export demand, leading to tighter margins.

The tight labour market, remains the most persistent challenge across all sectors, cited by nearly half of all firms interviewed by CBM. Businesses plan for wage increases in the 4–5% range for 2026. This is a central shift from previous years’ more varied adjustments. With the net balance of businesses planning to employ more employees dropping from 60% to 46% , the focus is shifting from rapid expansion to selective talent acquisition and retention. To counter chronic labour shortages and wage pressures, businesses MUST accelerate investment in digital solutions like ERP systems, automation and AI to enhance output per worker.

The report also highlights that investment intentions have moderated slightly (net 22%) , but the type of investment is becoming more specialized. The top investment avenues are Digitalisation & CAPEX as these remain the primary drivers for future-proofing operations and the Green Transition, where investment is “uneven”. While manufacturing leads in solar and process efficiency , the services and construction sectors have significant room for energy-efficient upgrades that could offset rising utility/operating costs long-term. Most firms are relying on a mix of internal funds and bank loans for these projects.

Looking forward, the services and tourism sectors are currently experiencing a significant surge, with performance levels among the strongest in the CBM survey’s history. This is largely driven by robust “shoulder month” activity that is now rivaling peak summer months. In contrast, the wholesale and retail sector remains optimistic but cautious; while no firms anticipate a decline in sales , they expect growth to slow as consumers become increasingly price-sensitive and wary regarding discretionary spending. For those in manufacturing, the outlook is the most neutral of all sectors, as firms face a combination of muted demand and limited pricing power. Stability is the prevailing theme here rather than recovery. Meanwhile, the construction and real estate sector continues to see buoyant transaction volumes and property values. While order books are currently well-supported by large-scale projects , the sector must contend with a shortage of high-end luxury properties and growing concerns over housing affordability.

Across all sectors, the primary strategic focus must be on enhancing operational efficiency to protect profit margins against a “new normal” of elevated costs. Businesses should prioritise the integration of digital technology and artificial intelligence as a long-term solution to persistent recruitment difficulties and rising labour costs.

Furthermore, maintaining a healthy balance between self-financing and bank credit will be essential for funding necessary capital expenditures and digitalisation efforts in a more cautious economic environment.

On a sector-by-sector basis, those in services and tourism should focus on capacity management to capitalise on the extended peak seasons while monitoring for seasonal demand dips in the first quarter. Wholesalers and retailers should sharpen their marketing and discount strategies to navigate price sensitivity and maintain volume during the slower months of the year. Manufacturers need to prioritise cost containment and productivity improvements to offset their lack of pricing power in competitive export markets. Finally, construction and real estate firms should focus on addressing the supply shortage in high-end segments while monitoring affordability trends that could eventually constrain demand.