Business updates

Sustained increase in the Business Confidence Indicator

Sustained increase in the Business Confidence Indicator

Economy 02 May 2018

The MCCI released its Business Confidence Indicator for the 1st quarter of 2018 on Wednesday 02 May 2018.

The latest quarterly business survey shows that business confidence continued to rise in the first quarter of 2018. The confidence index rose by 4.1 percent to reach 128.1 points, its highest level since the launch of the indicator in 2010.

The Mauritian economy is intrinsically linked to the global economy. We notice that the economic tendency at the global level is similar as to Mauritius. According to the CesIFO institute, the global economic climate continued to improve, and has reached its highest level since 2007, at positive 26 points.

This analysis is confirmed by international institutions.

The IMF confirms in its latest publication that the global upswing in economic activity that began around mid-2016 has become broader and stronger, with notable upsides in advanced and emerging economies alike.

 

This institution further improved its growth forecasts this April. It favours a macro-economic scenario where the global growth rate, as measured by GDP, increased by 3.8 percent in 2017 at its highest level of growth since 2011. Moreover, it has further improved its global growth forecasts for 2018 and 2019 to reach 3.9 percent.

 

These figures are largely higher than the growth rate of 3.2 percent observed in 2016. Nonetheless, the IMF cautions that the growth figures of 2018 and 2019 shall not be long lasting. It is expected that global growth shall return to more modest rates by 2020. The current recovery thus offers a window of opportunity to advance policies and reforms that secure the current upswing and raise medium-term growth to the benefit of all. The IMF’s International Monetary and Financial Committee thus advocates for Governments to use all policy tools available to achieve strong, sustainable, balanced, and inclusive growth.

 

In Mauritius the turnaround took place in the last quarter of 2016. Over the last year 2017, and during the first quarter of 2018, the evolution of the business confidence index has been positive irrespective of the sector of activity or the size of the business.

 

The moderate business cycle phase that started at the end of 2011 has indeed closed in 2016. We are observing a renewed dynamism and confidence expressed by entrepreneurs. Indeed, during the first quarter of 2018, entrepreneurs have expressed a planned increase in investment over the twelve months April 2018 – April 2019, mostly in Plant & Machinery and new Buildings. Our analysis thus confirms the recovery in private sector investment since 2016, after a period of contraction between 2012 and 2015. With interest rates at a relatively low level and with an expected increase in global and domestic demand, entrepreneurs are renewing with investment.

 

We further notice that a majority of operators have witnessed a global increase in demand as a result of demand side policies adopted during 2017. The combined effect of the minimum salary and the Negative Income Tax Regime have had a positive impact on the purchasing power of households and consumers. In addition, more than 35 percent of entrepreneurs have indicated that their strategies for diversification of products and the tapping into new markets have contributed positively to their business performance during the first quarter of the year, and are expecting that their business transformation strategies will have further positive impact over the next quarters of the year.

 

At the sectoral level, we notice continued general increases in confidence levels in the fourth quarter of 2017. The Services sector recorded the largest increase in the sectoral indicator, at 5.9 percent. The commerce sector recorded an increase in the sectoral indicator, at 3.8 percent, whilst we notice that the confidence index for the industry sector increased by 2.8 percent, driven by largely positive expectations for the future, despite being affected by the port closure and weather disruptions in the first quarter of 2018

 

An analysis based on the size of the workforce shows that the business confidence indices are rising, irrespective of the size of companies. Similar to the last three quarters of 2017, the synthetic business climate indicators improved for all business categories. For the first quarter of 2018, larger sized companies tend to be the engine of business confidence, whilst smaller and medium companies show moderate growth.

 

Based on our econometric model, and trend analysis, we estimate a year-on-year growth rate of 3.8 percent for the first quarter of 2018, compared to the corresponding quarter of 2017.

 

With both global and domestic outlook expected to be positive over 2018 and 2019, it is thus necessary that Mauritius makes use of this unique window of opportunity to implement structural policies and reforms that secure the current upswing and raise our potential growth beyond the short cycle.

 

 

The full report can be accessed here.