Sithanen: 6% growth in 2008 | Global Economic Outlook and Impact on Mauritius

In the Economic Times of India the Finance Minister stated:

"We had 5 per cent in 2006, we had 5.6 per cent in 2007, and we can keep the growth rate at 6.0 per cent in the coming year," Finance Minister Rama Sithanen told the media.

"There are five sectors which could do exceptionally well; tourism, construction, the manufacturing free zone, financial services and professional services."

Preliminary thoughts:

The biggest question for Mauritius now that we know the US will slow down and that there strong signs that the rest of the world economy has not 'decoupled' from the US is what impact will this have on growth?

Across the board from economists at the World Economic Forum to analyst's at Merill Lynch, have all predicted a recession of between 2Q to 4Q's in the US and slow down globally as consumption in the US slows liquidity gets tighter.

Mauritius should be fairly shielded from the economic slow down Europe because most of it's tourism is high end tourism - the beauty of being at the high end is that those who purchase high end services are less likely to cut back on expenditures; however we have seen a cutback in the US by the high net worth. The growth should at least be sustainable though with the air lines focusing on new markets. Most Hotels are booked out until May anyways.

Construction should remain strong because there is so much of it going on at the moment, the next five years could possibly be the biggest construction frenzy Mauritius has ever seen! It's still too early to determine how the global credit crunch will affect construction. Commodity prices remain strong.

Financial services should remain strong, although the Indian economy is showing weakness. However, this should rebound as US and European investors look for more promising returns - routing FDI through Mauritius.

Professional services may suffer a little, with companies cutting back expenditures or it could accelerate for companies trying to cut costs, who might move their operations to Mauritius. The industry faces a shortage of skilled workers though, which will probably be bigger downside on growth in this sector.

The biggest downside risk to the economy presumably could come from export manufacturing area - especially textiles, with the Mauritian Rupee strengthening and American consumers tightening their pockets the industry could be in for a major slow down depending on how long the US recession takes. With regard to the Seafood hub, it remains puzzling why this sector hasn't grown faster; there certainly is shortage of fish in world, with marginal quality cod in London now going for around $15 a pound.

Other factors: inflation was down to around 9% this year from 14% the year previous. A slower global economy should but a damper on oil prices, however food prices continue to rise and which will be of concern to the gov.

My range would probably be between 4% to 8% growth in Mauritius: a major factor to keep an eye on will be whether the FDI keeps flowing in. So far 2008 has gotten off to good start, mostly based on Chinese investments, namely, Tianli, China's expression of interest to build the "Dreambridge" across the PL Harbour, New Guibbes City, Film City, Domain des Pailles development, and the Albion IRS by Club Med. There are also smaller scale investments going on in real estate sectors, as well as other medium scale investments in the commercial and retail estate sector. The Les Salines projects, and expected investments by India would also be welcome.