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The Mauritius Chamber of Commerce and Industry Economic Review 2016 The International Context Policy transitions and uncertainties are continuously shaping the global economic outlook towards modest growth.In 2016, with the world economy faced by new shocks, subdued demand, and ongoing re-alignments, the IMF expects a slowdown in growth to 3.1 percent. Negative output gaps and persistently low inflation combined with political discord and inward-looking policies contributed to a fall in growth in advanced economies from 2.1 percent in 2015 to 1.6 percent in 2016. Compared to the last few years, the United States and the United Kingdom experienced lower growth rates of 1.6 percent and 1.8 percent respectively. These are largely due to policy uncertainties following the June U.K vote in favour of Brexit and the election of a new President in the U.S. In the Euro Area, the recovery seems to stagnate amidst stubbornly low inflation, high unemployment alongside structural weaknesses. The low oil prices, neutral fiscal policy stance and accommodative monetary policy have nonetheless helped to maintain growth at 1.7 percent. A slight pickup in activity was observed in Germany, with a growth rate of 1.7 percent in 2016 while France, Italy and Spain continued to show similar growth rates than 2015. Growth in the emerging markets is expected to strengthen modestly, with a growth rate of 4.2 percent forecast for 2016, a pace which is nonetheless well below its pre-crisis average. Whilst China's economic growth continues to fall on the back of structural reforms and further shift in activity from industry to services, growth in emerging Asia, especially India continues to be resilient, with the latter experiencing a growth rate of 7.6 in 2016. The country benefited from a large improvement in terms of trade, effective policy actions, and stronger external buffers, which have all helped to boost economic sentiment. Elsewhere in the world, Brazil and Russia are starting to show signs of stabilisation as the effects of past shocks and low commodity prices start to wear-off. Both economies nonetheless remained in recession at 3.3 and 0.8 percent respectively. Activity in the Sub-Saharan Region also continued to weaken as lower commodity prices are combined with weak domestic conditions and political instability. Though average global inflation remained benign in 2016,fears of deflation have diminished as the pull from low oil prices subsided. In advanced economies, a slight increase in consumer prices by 0.8 percent in 2016 was observed while broadly stable exchange rates have held inflation steadily in emerging and developing economies. 74092,3 75212,7 60048,4 GDP (USD Million) 34555,9 25122,4 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 11114,8 Local context 2016 Faced with an uncertain external environment, the Mauritian economy showed signs of renewed resilience. In 2016, growth rate at basic prices is expected to be around 3.6 percent according to latest figures from Statistics Mauritius, much higher than the 3 percent achieved in 2015. 7.0 Economic activity in the country continues to be driven by internal demand. On the one hand, consumption expenditure grew by 2.9 percent, higher than the 2.7 percent rate in 2015. Consumption expenditure was balanced between a 2.9 percent increase in household expenditure and a 3.0 increase in government expenditure. 4.0 On the other hand, investment grew by 5.7 percent after several years of contraction. Public sector investment expanded by 4.3 percent compared to 1 percent in 2015. With a recovery of 6.2 percent in 2016, private sector investment remained the largest driver of investment in the country with 73 percent of total investment by the private sector. 0.0 6.0 5.0 3.0 2.0 1.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Potential growth rate Actual growth rate On the external front, our exports of goods and services were marred by uncertainties and shocks in our main markets. In 2016, our exports decreased by 2.4 percent following a fall of 0.7 percent in 2015. Driven by still low world commodity prices and modest domestic demand, inflation rate reached its lowest figure since 1986 with a 1 percent rise in prices while unemployment continued to decrease to reach 7.4 percent in 2016. For a second consecutive year, the level of business confidence showed positive signs with a distinct rise over the year 2016 to reach 97.5 percent – its highest level since 2011. Yet, the MCCI Business Confidence Indicator remains in static territory, below its long-term average, a sign of continued uncertainty of entrepreneurs in the country’s economic situation. 385,715 265,214 GDP (Rs million) 107,325 7,389 33,415 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 841 The Mauritian economy has made considerable progress since independence, moving from a GDP of Rs 841 Million to achieve Rs 385 Billion in 2016. In fact, the country has been growing at an average of 5.3 percent since 1968. This has been enabled through a constant transformation in the country's economic structure, moving from a mono-crop economy with a high reliance on sugar to a diversified services-oriented economic model. While growth rates have moderated during the last few years, the country continues to show incredible resilience and dynamism. Investment raterate (%)(%) 17.6 Growth in investment (%) (%) 5.7 5.7 Unemployment rate (%)rate7.4 (%) 1 (% Investment 17.6 Growth in investment Unemployment (%)Inflation 7.4 Inflation %) 1 Business Confidence Indicator 100 % 96,7 96,3 101,9 106,5 111 Dynamic Territory 99 100 98,8 99,4 91,6 88,1 85,4 88 87,5 85,1 Static Territory # 85,3 87,9 82,5 79,6 93,4 89,8 94,2 98 93 97,5 88,1 77,5 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 The MCCI Business Confidence Indicator summarises, in a single variable, the simultaneous changes of several variables and thus allows an instant estimate of the morale of entrepreneurs over a short time period. The Business Confidence Indicator has witnessed a rise over all quarters of 2016, except in the third quarter where a slight fall was observed. The index settled at 97.5 points in the fourth quarter of 2015, its highest level since 2011. The BCI however remained in static territory below its long-term average of 100 basis points. Contribution to GDP (%) Sectoral growth rates (%) Real estate activities Real estate activities Financial and insurance activities Financial and insurance activities Information and communication Information and communication Accommodation and food service activities Accommodation and food service Wholesale and retail trade Wholesale and retail trade Construction Construction -10 -8 -6 2013 Manufacturing Manufacturing Agriculture Agriculture -4 -2 2014 0 2 4 2015 Per capita income ($) 9,322.00 6 8 10 2016 0 2013 Growth in exports (%) -2,4 5 2014 10 2015 15 20 2016 Growth in imports (%) 0.8 6.0 70.0 60.0 5.0 4.0 40.0 3.0 30.0 2.0 20.0 World Advanced economies Emerging market and developing economies Output Growth rate (%) Share of world total (%) 50.0 Inflation Trade World trade volume growth 1.0 10.0 0.0 2012 2013 2014 2015 2016 1.7% Employment 0.0 World unemployment rate 5.7% Advanced economies Share of world total Emerging market and developing economies Share of world total Major Stock Market Growth (%) World Advanced economies FTSE NASDAQ Emerging market and developing economies 1 2 5 4 2.9% 0.7% 4.5% 6 3 14.4 7.5 DOW JONES NIKKEI 13.4 0.4 1 European Union Growth 1.9% Share of world total 16.7% 2 Emerging and Growth Developing Europe Share of world total 3 Emerging and Developing Asia Growth 6.5% Share of world total 31.8% 4 Latin America and the Caribbean Growth -0.6% Share of world total 7.9% 5 Middle East and North Africa Growth Share of world total 3.2% 6.7% 6 Sub-Saharan Africa Growth Share of world total 1.4% 3% 3.3% 3.3% Outlook 2017 On the international scene, the economic performance of advanced and developing economies in 2016 remained weak. Looking ahead, the IMF predicts global economic activity to pick up pace in 2017 and 2018, especially in emerging market and developing economies. Nonetheless, there are a number of downside risks linked to policy uncertainties concerning the global ramifications of a changing policy mix by the U.S administration and the triggering of Article 50 to leave the European Union by the U.K. Amidst a rebound in the world economy, growth in Mauritius is expected to pick-up slightly. Latest IMF estimates point towards a growth of 3.9 percent in 2017. Higher rates of economic growth in the Mauritian economy will largely depend on a renewal in public and private investment, driven by the intended kick-start of large-scale projects such as the Metro Express. Moreover, the opening up of life rights to foreign retirees, will likely further boost consumption expenditure, one of the most critical determinants of economic growth in the country. Economic Barometer Future 40 Recovery/Upswing Upturn/ Boom - Present economic situation: still bad but improving - Economic expectations positive - Present economic situation: good - Economic expectations: positive 30 20 Q2 2016 10 Q1 2016 -40 -30 -20 -10 Q3 2016 Q4 2016 0 10 20 Current situation 30 40 -10 -20 Cooling down/Downswing Trough/Recession - Present economic situation bad - Economic expectations negative -30 - Present economic situation: still good, but deteriorating - Economic expectations: negative -40 The MCCI's latest Economic Barometer shows that the country is now in an Upturn, with a sustained improvement in the current economic situation over 2016. Entrepreneurs in general remain positive in regards to future prospects for the economy. Nevertheless, both internal and external risks remain as the country is faced with the combination low domestic demand and persistent uncertainties in the global economy. Mauritius needs to makes full use of its monetary, fiscal and structural policy levers to sustain its growth prospect.