Growth in credit to the private sector, which stood at 9.4% in January 2013, declined to -0.5% in February 2014, according to a report by the Bank of Mauritius (BoM).
The central bank noted a sliding trend in credit to the private sector as a percentage of GDP. This, in turn, was reflected in the credit utilisation rate, which is closely related to developments in economic activity and aggregate demand, and calculated as the annual change in credit to the private sector as a percentage of GDP.
“As the global recovery slowly takes hold, it may take some time before businesses return to normal conditions and resume investment to improve competitiveness and expand capacity to meet sustained external demand,” the report outlined.
On the positive side, the inflation report noted that a stronger-than-expected growth in the economies of Mauritius’ main trading partners supported increased growth, which resulted in a reduction in business uncertainty and induced firms to undertake new projects.
However, it cautioned that “Productivity issues as well as the relative concentration of markets despite recent diversification efforts are among the greatest obstacles that the export industry faces.”
BoM highlighted that growth in banks’ credit to the private sector over the year to February 2014 was largely attributable to the construction sector with an increase of 2.5 percentage points, followed by credit to the ‘personal’ sector with a rise of 2.0 percentage points and to ‘tourism’ with a hike of 1.2 percentage points.
On the other hand, credit extended to public nonfinancial corporations and traders contributed negatively to total credit growth.
According to the business confidence survey of the Mauritius Chamber of Commerce and Industry (MCCI), 23% of respondents were planning to boost their investment level over the next 12 months while 26% would reduce it.
Business confidence declined in the manufacturing, services and distribution sectors, with the overall index going down by 2.7 points to 85.3 points in 2014 Q1.
Low private investment was seen in the slow growth rate where the gross domestic fixed capital formation (GDFCF) came down by 3.5% in 2013 although an increase was seen in the last quarter of 2013 on the acquisition of several fishing vessels, which had a unique impact on investment.
The GDFCF is expected to grow by 1.2% in 2014, led by a 12.8% growth in public sector investment whilst private investment is forecast to decline for the third consecutive year.
The slow economic recovery of BoM’s main trading partners, the muted business confidence and high levels of indebtedness in the corporate sector are expected to affect private investment.
“The financial positions of some businesses remain difficult, thus restraining their ability to invest,” BoM highlighted.
At the public investment level, the projected recovery in 2014 is based upon the expectation of additional investment already allocated for various infrastructural projects after the contradiction of 4.9% registered in 2013.
“However, the implementation of those public sector projects is subject to uncertainty as there may be capacity constraints. In fact, the public investment rate has been on a declining trend for more than 10 years,” BoM noted.
The BoM advised consumers to remain prudent in 2014 with their spending constrained by relatively weak demand for labour while growth in wages in the private sector has not kept pace with the increase in salaries in the public sector.
Furthermore, Statistics Mauritius anticipates a marginal improvement in household consumption expenditure growth of 2.7% in 2014 against 2.6% in 2013.
It may be noted that the inflation report is published by the central bank on a twice yearly basis, in April and October.
Image (Invest Mauritius): On the positive side, the inflation report noted that a stronger-than-expected growth in the economies of Mauritius’ main trading partners supported increased growth, which resulted in a reduction in business uncertainty and induced firms to undertake new projects.
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