Gozo's business community ended 2025 in a more confident mood than it began the year. Surveys published by the Gozo Regional Development Authority (GRDA) and Gozo Business Chamber (GBC) reveal a positive shift in business sentiment. Carried out in 2025, May and December respectively, these reports highlight better current activity, increased investment intentions, and ongoing hiring interest. Yet read together, the reports also reveal a more fragile picture beneath the surface - one shaped by labour shortages, uneven sectoral momentum, and growing anxiety about future demand.

The top-line statistics give a misleadingly optimistic impression. Between spring and autumn 2025, the share of firms reporting improved business conditions rose from 30% to 38%, while those experiencing deterioration fell from 16% to just 8%. The resulting net balance doubled, reaching its highest level since the sentiment exercise began. In plain terms, more businesses felt things were getting better, and far fewer felt they were getting worse.

The industry started and directed the movement. Manufacturing and construction firms reported the strongest gains, with the secondary sector recording a net balance above 40% by the end of the year. Services also improved, although with sharper contrasts. Tourism-linked activities recovered from weakness earlier in the year, while professional, scientific and administrative services maintained steady gains. Under current conditions alone, Gozo's economy looked busier, fuller, and more active.

The tone changes, however, when expectations enter the picture. In May, optimism about the next six months peaked. Over 40% of firms expected activity to improve, producing the most upbeat forward-looking balance on record. By December, that share fell to 24%. Most firms no longer expected growth; they expected stability. The net balance of expectations dropped sharply, though it remained positive. These trends echo those in the Central Bank of Malta's Business Dialogue. The situation in Gozo mirrors Malta's, but Gozo's outlook seems more pessimistic.

We should not overlook the significance of this shift. Businesses may welcome today's trade, but they no longer assume tomorrow will be stronger. Tourism, wholesale and retail, and finance showed the clearest cooling in outlook, suggesting that confidence depends increasingly on brief seasons and narrow margins. Manufacturing and education-health were positive, but now are the major drivers of progress.

Labour shortages run through both surveys like a fault line. In May, 53% of firms identified the lack of suitable workers as their primary concern. In December, the figure was unchanged. The stable facade actually masks high intensity. By year-end, three-quarters of education and health firms struggled to recruit. Two-thirds of Information and Communications Technology (ICT) businesses said the same. Tourism and transport followed close behind.

This is no longer a cyclical hiring problem. These particular features possess a structural nature. Firms want to expand, invest, and take on work, yet cannot find the people to do it. Hiring intentions remain high - half of firms still plan to recruit - but those intentions increasingly collide with reality. Demand exists while supply does not.

Cost pressures add another layer of strain. After easing earlier in the year, concerns about costs edged back up by December. Around two-thirds of businesses expect input prices to rise, and roughly one-third expect to raise selling prices. These figures no longer shock, but they squeeze margins in sectors that cannot easily pass costs on to consumers. Accommodation, food services, construction, and professional services feel this most acutely.

More troubling is the return of anxiety about sales. In May, only 15% of firms worried about slowing demand. By December, that figure rose to 26%, with wholesale and retail businesses especially exposed. This divergence - strong current activity paired with growing concern about demand - suggests an economy leaning heavily on momentum rather than depth.

Investment trends remain a bright spot. More than half of firms reported recent investment in spring, and by autumn nearly two-thirds planned further investment in the months ahead-the highest reading since the survey began. The pattern has also become more comprehensive and has broadened. Early investment clustered in knowledge-based sectors. Later, manufacturing, arts, and entertainment, real estate, insurance, and accommodation joined in.

These matter because investment signals belief in the medium term. Firms would not commit capital if they expected an imminent slowdown. Yet investment alone cannot resolve the constraints firms face. Machinery does not replace missing workers overnight. Buildings do not solve skills shortages. Capital deepening helps, but only up to a point.

The thematic sections of the two surveys reinforce this message. The May report focused on employee well-being. Most firms offered flexible arrangements, but only a small minority provided mental-health support. Cost, scale, and operational pressure limited ambition. Small firms, which dominate Gozo's economy, simply lack the slack to do more.

By December, the focus shifted to workforce diversity and non-local labour. Nearly two-thirds of firms now employ non-local workers. One in five relies on a majority non-local workforce. Businesses accept this reality, and they also struggle with it. Language barriers, integration, retention, and administrative complexity weigh heavily. Firms value non-local workers because they fill gaps. They also know that these gaps are growing.

Taken together, the two surveys describe an economy that is active but stretched. Growth persists, but it depends increasingly on imported labour, rising costs, and sectors vulnerable to seasonal swings. Confidence remains positive, but it has become conditional. Businesses no longer ask whether Gozo is growing. They ask whether it can keep growing this way.

It is obvious what the policy implications are, and they are self-explanatory. Labour supply, skills training, housing affordability, and transport connectivity now sit at the centre of economic resilience, not its margins. Without coordinated action, businesses will continue to invest and hire in theory while struggling in practice. Optimism alone cannot bridge that gap.

Gozo's business community ended 2025 in better spirits than it began the year, but not in comfort. The surveys showed momentum, not security. Despite the increase in activity, expectations are becoming less enthusiastic. Investment grows, yet labour shortages tighten. If policy keeps celebrating growth while ignoring constraints, confidence will flatten into frustration. Arguing that a different business model will emerge from these constraints is unconvincing. Change needs to be fostered, sustained, and well thought out in advance, a pre-emptive move rather than a reactive one. Gozo is energetic and full of initiative. It needs better planning to create lasting success from its current work.