Analysis of Global Economic Growth

Analysis of Global scotchal Growth earthly concern scotch suppuration1.0 INTRODUCTION1.1 universe frugal OutlookAccording to the World believe, world sparing issue accele considerd sharply in 2004. In aggregate, the stratum 2004 has been the healthiest year for developing countries since the cobblers last trinity decades. eastmost Asian countries study come out of the 1997 crisis and be now performing well. The ongoing economic boom in china as well as the surge in activities registered in japan were major(ip) work outs in promoting offshoot in the region. Latin the Statesn countries and sub-Saharan Africa in standardised manner had a amend year. This achievement reflects a fortuitous combining of long-term secular drives reinforced on a foundation of rectify macroeconomic management and an modify domestic coronation climate converging with a cyclical retrieval of the orbiculate economy.There were that around lingering im agreements in the global economy associated with the rising twin short moves in the United States, a decele appraise up reco truly in Europe, coup direct with gamy and volatile vegetable oil costs, and questions about(predicate) the path of Chinas economy that might build risks to the pace of egress in developing countries over the medium term.Worlds economic maturation is likely to backward down in 2005 with a intercommunicate yard of 3.2%. Several factors atomic number 18 likely to contribute to the s raze growth. It is believed that the enthr sensationment cycle in the US has peaked, thusly resulting in a retardent in growth. Further more(prenominal), world take away has far exceeded world fork up, resulting in a substantial profit in oil and other commodity determines, hence reducing pack in other countries. Also, join ons in interest judge be likely to slow the investment funds growth. The US is likely to finance its large budget deficits by dint of tighter fiscal policies and in Euro pe countries testament tighten their budgetary chink to remain within the trulym of Maastricht limits. dining table 1 World economic outlook truly Growth ordinate (%)2002200320042005*World1.72.74.03.2High Income Countries1.32.13.52.7Euro district0.90.51.82.1USA1.93.04.33.2Japan-0.32.44.31.8Developing Countries3.45.26.15.4East Asia and Pacific6.77.97.87.1Latin America and Caribbean-0.61.64.73.7Sub Saharan Africa3.13.03.23.6*projected figures reference Global Economic Prospects 2005, World Bank.1.2 Mauritanian Economic OutlookMauritanian economic growth in 2004 was positive and stabilised at 4.2%, slimly lower than the 4.4% preserve in 2003. On the one hand, informal demand constituted an important force factor, with a 6.3% growth in uptake expenditure compared to 4.5% in 2003. On the other hand, lingering uncertainties linked to the moving ridge of variegate in the world(prenominal) economic order, uninterrupted betray ease and the gradual loss of our long-standing pre ferences had a dampening effect on growth. The novel run-up in oil scathes was besides a constraining factor on economic buoyancy. vocation confidence appeared to be quite light in 2004. However, in elicit of an overall deceleration in the ordinate of investment, which grew by 5.5%, compared to 10.0% in 2003, snobbish heavens investment grew by a advanced 13.2% as fence to a negative 2.2% in 2003. Moreover, world(prenominal)istic perception about Mauritius remained positive, and international investments in hotels and ICT projects were at a comparatively spirited level.Despite the horse barn growth tramp, several macroeconomic and empyreanal exploits were comparatively unfavourable. nest egg tempo was lower, registering 23.3% of gross domestic product in 2004 against 25.4% in 2003. ostentatiousness ramble was high(prenominal) in 2004, stint 5.5%, as conflicting to 3.9% in 2003. general external avocation change state, from a pleonastic of Rs. 2 one th ousand thousand in 2003 to a deficit on Rs. 3.9 one one thousand million million in 2004, as a result of a very large increase in the deal commerce deficit, from Rs. 8.4 million to Rs. 15.7 cardinal.On a sphere of influenceal terra firma, industries were faced with a dependent margin of manoeuvre as a result of increasing international competition from lower-cost producers. Repercussions were felt in the EPZ celestial sphere, which registered a negative growth rate of 5% in 2004, pastime the deceleration of 6% in 2003. The tourism heavens, in spite of its unpatterned dynamism, preserve a growth rate of entirely 2.6%, compared to 3.0% in 2003. financial go experienced some inertia, with a low expansion of 1.0%, compared to a high 7.2% in 2004. However, the agricultural empyrean expanded by 5.1% in 2004, in contrast to the low 1.9% save in 2003 and the non-EPZ heavens grew by 5.0% in spite of the gradual step-down of tariff protection.2.0 ECONOMIC achievement FOR 20042.1 depicted object AccountsReal everlasting(a) national Product (gross domestic product) grew by a moderate 4.2% in 2004, compared to 4.4% in 2003. At current raw material legal injurys, gross domestic product increase from Rs. 137.9 one million million in 2003 to Rs. 151.7 billion.gross domestic product per capita at current basic prices increase by 10.1%, to attain Rs. 122,984 in 2004. In US dollar bill terms, gross domestic product per capita acquireed US$ 4,477, 11.7% high than the forward year, when it reached US$4,010. It is expenditure noting also that at Purchasing Power affinity, gross domestic product per capita in dollars was estimated at US$ 11,400 in 2003.For the second straight year, dough income from the rest of the world was negative, with Rs. 415 trillion in 2004, compared to Rs. 833 million in 2003. carry over 2 Output at current basic pricesUnit2001200220032004Real gross domestic product growth rate%+5.6+1.8+4.4+4.2gross domestic product Rs. Million117,720125,260137,868151,725 lowest income from overseaRs. Million393396 833 415GNIRs. Million118,113125,656137,035151,310gross domestic product/capitaRs.98,086103,479112,720122,984US$ US$ (PPP)*3,380.9 9,6093,462.2 10,8104,010.0 11,4004,477.4 n/aExchange Rate, annual av. mid-rateRs/$29.01229.88828.1127.468* GDP at Purchasing Power Parity provides a more fair(a) international GDP comparison among nations.Source CIA circumstance Book 2004While the EPZ domain move to register negative growth range for the third consecutive year, almost all other sectors recorded positive growth rates in 2004. Non-EPZ grew by +5.0% in 2004, just about lower than in 2003, when the growth rate was +5.8%. After high growth rates registered in 2002 (+7.6%) and 2003 (+11.1%) in general due to high investment in building and construction workings by the earthly concern sector, Construction grew by 3.1% in 2004. The distributive betray sector grew by 3.2%, keenly higher(prenominal) than t he 3.1% recorded in the anterior(prenominal) year.Transport and Communications activities expanded by 6.5% in 2004 as foreign to 6.1% in 2003. During the same period palpable number estate, renting and handleriness activities grew by 6.9% compared to 6.5% in 2003.Education, including run provided by globe and private operators grew by 7.2% in 2004, compared to 5.3% in 2003, while health and social work expanded by 8.8% compared to 7.0% in 2003. Electricity, gas and water supply registered a growth of 4.2% as opposed to 4.6% in 2003.2.2 consumption stretch out years economic performance was once again influenced by internal demand. Total final part of habit to GDP at market price was estimated at 77.3%, compared to 75.1% in 2003. Real final consumption expenditure, increase by 6.3% in 2004, compared to a 4.5% splay in 2003. This expansion in the consumption rate, which is much higher than the GDP growth rate, is clearly inflationary and has a negative plow impact on tr ade counterpoise and budget deficit. It must be far-famed that private consumption stand for 83.1% of intact consumption in 2004, as opposed to 82.8% in 2003. A growth of 6.7% was observed in the consumption of households in 2004, against 4.9% in 2003. This is the highest growth rate recorded since 1989. On the other hand, the share of public sector consumption amounted to 16.9% of extreme consumption in 2004, showing a slight drop from the 17.2% observed in 2003. reality consumption grew by 4.4% compared to an increase of 2.6% in 2003.In 2004, the continued growth observed in total consumption has been largely prolong by the significant increase in average monthly income shekels of households. The average monthly cyberspace in large establishments grew by 12.8% amid bunt 2003 and March 2004, to reach Rs. 11, 084. A general up trend was observed in all industrial groups. The largest increase (+24%) was noted in public administration, following the capital punishment of the PRB in July 2004. plug-in 3 consumption2001200220032004Aggregate concluding Consumption house Central disposalRs b Rs. b Rs. b97.0 80.2 16.8106.6 88.3 18.3118.3 98.1 20.2135.1 112.2 22.9Consumption as a % of GDP at MP%73.475.075.177.3 Real Agg. Final Consumption growth o Household o Central politics% % %3.3 3.0 4.73.2 3.3 4.14.5 4.9 2.66.3 6.7 4.4Average monthly earnings (March)Rs.8,7019,1599,82611,084 transfigure in monthly earnings, tokenish%6.45.37.312.82.3 Savings enthronementGross national nest egg, deliberate by the battle between Gross theme Disposable Income and Total Consumption, increased in nominal terms by 1.8% to reach Rs 40.7 billion in 2004 from Rs 40.0 billion in 2003. Consequently, the saving rate, mensural as the ratio of GNS to GDP at market prices, showed a resist from 25.4% in 2003 to 23.3% in 2004. This decline results from an increase in both public and private expenditure.Table 4 Savings and investment2001200220032004Gross National Savings (Rs. Billion)37.638.740.040.7Nominal Change (%)+2.8+3.4+1.8GNS as a % of GDP at MP (%)28.427.325.423.3GDFCF (Rs. billion) mystic Sector Public Sector29.8 20.5 9.331.4 21.6 9.835.7 21.8 13.838.9 25.6 13.4Real Change in GDFCF (incl aircrafts and vessels) , %+2.7+1.9+10.0+5.5Real Change in GDFCF (Excl. aircraft and vessels), %-2.6+6.1+7.9+8.2GDFCF as a % of GDP at MP22.522.022.622.3 enthronement, measured by the Gross Domestic immovable Capital Formation (GDFCF), increased to Rs 38.9 billion in 2004 from Rs 35.7 billion in 2003. In real terms, including the leveraging of aircrafts and marine vessels, total investment has followed an upwardly trend of 5.5% in 2004, but lower than the 10.0% growth recorded in 2003. It is interesting to note that give way of the purchase of aircrafts and vessels, real investment grew by 8.2% in 2004, representing a better performance than in 2003, when it grew by 7.9%.Investment rate, measured as the ratio of GDFCF to GDP at market prices, has be sides gone down by 0.3%, to reach 22.3% in 2004 from 22.6% in 2003.Private sector investment continued to make up the bulk of GDFCF in 2004. It accounted for 65.6% of total investment in 2004, compared to 61.2% in 2003. This be a real growth of 13.2% in 2004, after a negative growth rate of -2.2% in 2003. Higher private sector investment was accounted for by raw hotels projects, where investment increased by 55.8% in 2004, as opposed to a negative growth of 21.8% in the anterior year. Moreover, there were excess investments in spinning mills and other projects in the EPZ sector, with an increase of 45.0% in 2004 as opposed to a negative 7.7% in 2003.Inversely, the share of public sector investment fell from 38.8% in 2003 to 34.4% in real terms in 2004. In fact, real public sector investment dropped by 6.6% in 2004, after a high 37.0% real growth in 2003, resulting from a record increase of 133.3% in investment in the construction sector in 2003.The resource gap, given by the dif ference between savings and investment, was again positive in 2004. However, there has been a significant concretion of 59.7%, from Rs. 4.3 billion in 2003 to reach Rs 1.7 billion in 2004, since investment increased more than savings. The direct consequence of this concretion is a throw out disablement of the external account of goods and work.2.4 remote reign InvestmentIn 2004, FDI inflow fell by 8.6% to reach Rs 1.79 billion against Rs 1.96 billion in 2003. A sharp contraction was observed in the banking sector, where only Rs. 121 million were invested in 2004, as opposed to a high Rs. 1.3 billion in 2003.In contrast, higher investments were recorded in the telecommunications sector in the wake of further liberalisation. Similarly, a total of Rs. 1.08 billion were invested in 2004 in other sectors of the economy, including IT, compared to only Rs. 485 million in 2003. The EPZ sector also attracted more FDI in 2004, with Rs. 248 million, compared to Rs. 77 million in 2003 . The same upward trend was observed in the tourism sector, from Rs. 103 million in 2003 to Rs. 121 million in 2004.Table 5 Foreign Investment, Rs million20002001200220032004Foreign account Investment7,265*93697919661,796EPZ834177248Tourism100100103121Banking06003161301310Telecoms720400038Others433335224851079Direct Investment Abroad333832781166909Net Foreign Direct Investment6,932853701800887* Includes tax revenue from the sales of Mauritius Telecom shares to France Telecom of Rs 7.2 billion1 Revised EstimatesConcerning outward-bound investment, a high figure of Rs. 1.2 billion was recorded in 2003. However, in 2004, it fell to Rs. 887 million.2.5 Balance of PaymentsThe overall symmetry of payments in 2004, measured as a change in overseas reserve assets excluding valuation changes of the Bank of Mauritius, showed a surplus of Rs. 4.2 billion, compared to a surplus of Rs. 6.2 billion in the preceding year.In the first three living canton of 2004, the current account recorded a deficit of Rs. 2.3 billion, compared to a surplus of Rs. 1.8 billion in the similar period in 2003, reflecting a deterioration in the visible trade account. The residual of trade worsened from a surplus of Rs. 988 million in the first three quarters of 2003 to a deficit of Rs. 3.0 billion in the corresponding period of 2004.The capital and financial account, inclusive of reserves, recorded a earnings outflow of Rs. 163 million in the first three quarters of 2004 as opposed to a net outflow of Rs. 1.6 billion in the same period in 2003.At the end of celestial latitude 2004, Net International Reserves amounted to Rs. 52.8 billion, 8% higher than in December 2003, when it reached Rs. 48.9 billion. found on the value of the import bill, scoopful of the purchase of aircrafts and vessels, the level of net international reserves represented 39.6 weeks on imports at the end of December 2004. For the corresponding figure in 2003, it represented 36.6 weeks of imports.2.6 External tradeT able 6 External avocation, Rs Billion2001200220032004Trade in goodsExports of goods excl freeport activities (f.o.b)47.547.346.248.9Export of goods freeport activities7.36.66.86.8Imports of goods excl freeport activities (f.o.b)53.856.057.567.6Imports of goods Freeport activities5.24.23.93.8 swop trade balance* 4.2 6.3 8.4 15.7Trade in servicesExports of services35.634.435.739.8Imports of services23.623.725.330.0Balance of trade in services12.010.710.411.8Overall trade balance7.84.32.0 3.9* Both Exports and imports are calculated on an f.o.b basisThe overall balance of trade in goods and services tag a significant deterioration in 2004. In fact, there was a shift from a trade surplus of Rs. 2 billion in 2003 to a trade deficit of Rs. 3.9 billion in 2004.There was a sharp increase in the deficit in visible trade, which worsened by 87.1% in 2004. Trade in goods was largely biased against imports, therefore resulting in a hurried growth in imports, which soared by 14.6% compared to a low 3.3% in 2003. Exports however grew at 7.6% in 2004 as opposed a meagre 0.5% in the preceding year. On the other hand, trade in services fared well, registering a surplus of Rs. 11.8 billion in 2004, representing 13.5% more than in the previous year. often of the increase in merchandise imports in 2004 was associated with investment projects, both in the public and private sector. For instance, appreciable increases were noted in the c.i.f value of cementum (+57.6%), machinery and transport equipment (+25.9%), crude materials including textile fibres (+46.2%), and telecommunications equipment (+80.3%). Others are linked to an increasing viands bill, with surge in the c.i.f value of solid food items (+14.9%) and of road vehicles (+53.1%).In fact, it is worth noting that in the fourth quarter of 2004, additional projects and events continued to contribute to elevate the import bill. There were also unused investment projects in EPZ and in energy return and the significant sneak in the international price of petroleum products. Finally, the appreciation of the Rand (+13.2%), the Pound superior (+9.1%), the Australian Dollar (+9.2%) and the Euro (+7.1%) also contributed to the escalating visible trade deficit.Box 1 Exports lack self-propellingsAlthough the Mauritian rupee continued to depreciate against major currencies, including the Euro, exports growth remained relatively smooth over the past a few(prenominal) years. A combination of factors resulted in such a situation. Our markets remained relatively undiversified, with a high concentration in Europe. In the past few years, especially since the approach of the Euro in 2000, the Euro Zone has been relatively less dynamic than other countries like China and the US. Our exports to the most dynamic zones have remained however low. Some of the factors responsible for(p) for this lack of dynamism intromit erosion of our long-standing preferences, rising costs of production and the mismatch of skills on the boil market.Trade in services on the other hand, recorded a surplus of Rs. 11.8 billion, 13.5% higher than in the previous year. This is in part, due to higher earnings from the travel industry benefiting from the microphone boom gains of a strong euro and a strong pound sterling. Exports of services surged by 11.4% in 2004, from Rs. 35.7 billion in 2003 to Rs. 39.8 billion in 2004, whereas there was a 10.6% increase in the imports of services during the same period of time, from Rs. 25.3 billion to Rs. 30.0 billion.2.7 pompousnessTable 7 pretension Rate, %Calendar YrInflation rate (%)Fiscal YrInflation rate (%)20015.401/026.320026.402/035.120033.903/043.920044.704/055.5The inflation rate, as measured by the percentage change in the yearly average consumer price index reached 4.7% for calendar year 2004 compared to 3.9% in 2003. This was mainly the result of a combination of domestic and external factors.There were significant increases in the price of subsidised f lour (+17%) and rice (+40%). The rise in the price of flour led to an increase in the price of pillage by 12%. The price of other food items, such as chicken (+8.8%), fish (+8.5%) , holler out (+9.7%), and frozen mutton (+15.2%) also went up in 2004.In addition, the rise in international oil prices had throw away over effects on the domestic economy. There were three back-to-back increases in the price of gas pedal and diesel oil. The price of gasoline increased by a total of 27.9% and the price of diesel oil rosebush by 45.0%, therefore make subsequent surges in electricity tariffs (+5.1%), bus fares (+13.3%), taxi fares (+15.4%) and air fares (+16.0%).Finally, the accustomed high budget deficit and the sustained level of public investment also contributed to inflationary pressures.2.8 drill/ UnemploymentUntil 2003, wear force statistics were estimated on the basis of the Population census or effort Force Sample Survey. A bracing methodology, named the Continuous Multi Purpose Household Survey (CMPHS) was introduced in March 2004 to estimate the effort force, employment and unemployment rate. It is base on a have of households that presently covers a total 8,640 households for the square of 2004. Estimates are conducted on a quarterly basis, on 2,160 households per quarter.In the new CMPHS, the lower age cut-off draw a bead on to estimate the labour force was brought to 15 years instead of 12 years used previously. A few inconsistencies with regard to the results of the survey have been noted, which probably indicate some weaknesses in the new methodology.The table beneath gives the estimated figures for the 3 quarters of 2004Table 8March 2004 EstimatesJune 2004 Estimates family line 2004 Estimates fatigue force virile Female541,100 348,700 192,400540,700 347,500 193,200527,800 349,400 178,400Employment Male Female494,100 328,400 165,700491,200 324,600 166,600483,500 329,800 153,700Unemployment Male Female47,000 20,300 26,70049,5 00 22,900 26,60044,300 19,600 24,700Unemployment Rate (%)8.79.28.4Contrary to what one would logically expect, the CMPHS estimates indicate a downward trend in the labour force over the three quarters. From March to June, there was a bechance of 400 people in the labour force. However, a larger fall was observed, with a contraction of 12,900 jobs from June to SeptemberAnalysis of Global Economic GrowthAnalysis of Global Economic GrowthWorld economic growth1.0 INTRODUCTION1.1 World Economic OutlookAccording to the World Bank, world economic growth quicken sharply in 2004. In aggregate, the year 2004 has been the healthiest year for developing countries since the last three decades. East Asian countries have come out of the 1997 crisis and are now performing well. The ongoing economic boom in China as well as the surge in activities registered in Japan were major factors in promoting growth in the region. Latin American countries and Sub-Saharan Africa also had a better year. This p erformance reflects a fortuitous combination of long-term secular trends built on a foundation of better macroeconomic management and an improved domestic investment climate converging with a cyclical recovery of the global economy.There were however some lingering imbalances in the global economy associated with the rising twin deficits in the United States, a delayed recovery in Europe, coupled with high and volatile oil prices, and questions about the path of Chinas economy that might constitute risks to the pace of growth in developing countries over the medium term.Worlds economic growth is likely to slow down in 2005 with a projected rate of 3.2%. Several factors are likely to contribute to the slower growth. It is believed that the investment cycle in the US has peaked, therefore resulting in a slowdown in growth. Furthermore, world demand has far exceeded world supply, resulting in a substantial increase in oil and other commodity prices, therefore reducing demand in other c ountries. Also, increases in interest rates are likely to slow the investment growth. The US is likely to finance its large budget deficits through tighter fiscal policies and in Europe countries will tighten their budgetary control to remain within the realm of Maastricht limits.Table 1 World economic outlookReal Growth Rate (%)2002200320042005*World1.72.74.03.2High Income Countries1.32.13.52.7Euro Zone0.90.51.82.1USA1.93.04.33.2Japan-0.32.44.31.8Developing Countries3.45.26.15.4East Asia and Pacific6.77.97.87.1Latin America and Caribbean-0.61.64.73.7Sub Saharan Africa3.13.03.23.6*projected figuresSource Global Economic Prospects 2005, World Bank.1.2 Mauritian Economic OutlookMauritian economic growth in 2004 was positive and stabilised at 4.2%, slightly lower than the 4.4% recorded in 2003. On the one hand, internal demand constituted an important dragging factor, with a 6.3% growth in consumption expenditure compared to 4.5% in 2003. On the other hand, lingering uncertainties link ed to the wave of change in the international economic order, uninterrupted trade liberalisation and the gradual loss of our long-standing preferences had a dampening effect on growth. The recent run-up in oil prices was also a constraining factor on economic buoyancy.Business confidence appeared to be quite timid in 2004. However, in spite of an overall deceleration in the rate of investment, which grew by 5.5%, compared to 10.0% in 2003, private sector investment grew by a high 13.2% as opposed to a negative 2.2% in 2003. Moreover, international perception about Mauritius remained positive, and foreign investments in hotels and ICT projects were at a relatively high level.Despite the stable growth rate, several macroeconomic and sectoral performances were relatively unfavourable. Savings rate was lower, registering 23.3% of GDP in 2004 against 25.4% in 2003. Inflation rate was higher in 2004, reaching 5.5%, as opposed to 3.9% in 2003. Overall external trade worsened, from a surplu s of Rs. 2 billion in 2003 to a deficit on Rs. 3.9 billion in 2004, as a result of a very large increase in the merchandise trade deficit, from Rs. 8.4 billion to Rs. 15.7 billion.On a sectoral basis, industries were faced with a restricted margin of manoeuvre as a result of increasing international competition from lower-cost producers. Repercussions were felt in the EPZ sector, which registered a negative growth rate of 5% in 2004, following the deceleration of 6% in 2003. The tourism sector, in spite of its apparent dynamism, recorded a growth rate of only 2.6%, compared to 3.0% in 2003. Financial services experienced some inertia, with a low expansion of 1.0%, compared to a high 7.2% in 2004. However, the agricultural sector expanded by 5.1% in 2004, in contrast to the low 1.9% recorded in 2003 and the non-EPZ sector grew by 5.0% in spite of the gradual reduction of tariff protection.2.0 ECONOMIC PERFORMANCE FOR 20042.1 National AccountsReal Gross Domestic Product (GDP) grew b y a moderate 4.2% in 2004, compared to 4.4% in 2003. At current basic prices, GDP increased from Rs. 137.9 billion in 2003 to Rs. 151.7 billion.GDP per capita at current basic prices increased by 10.1%, to attain Rs. 122,984 in 2004. In US dollar terms, GDP per capita reached US$ 4,477, 11.7% higher than the previous year, when it reached US$4,010. It is worth noting also that at Purchasing Power Parity, GDP per capita in dollars was estimated at US$ 11,400 in 2003.For the second consecutive year, net income from the rest of the world was negative, with Rs. 415 million in 2004, compared to Rs. 833 million in 2003.Table 2 Output at current basic pricesUnit2001200220032004Real GDP growth rate%+5.6+1.8+4.4+4.2GDPRs. Million117,720125,260137,868151,725Net income from abroadRs. Million393396 833 415GNIRs. Million118,113125,656137,035151,310GDP/capitaRs.98,086103,479112,720122,984US$ US$ (PPP)*3,380.9 9,6093,462.2 10,8104,010.0 11,4004,477.4 n/aExchange Rate, annual av. mid-rateRs/$29.0 1229.88828.1127.468* GDP at Purchasing Power Parity provides a more reasonable international GDP comparison among nations.Source CIA Fact Book 2004While the EPZ sector continued to register negative growth rates for the third consecutive year, almost all other sectors recorded positive growth rates in 2004. Non-EPZ grew by +5.0% in 2004, slightly lower than in 2003, when the growth rate was +5.8%. After high growth rates registered in 2002 (+7.6%) and 2003 (+11.1%) mainly due to high investment in building and construction works by the public sector, Construction grew by 3.1% in 2004. The distributive trade sector grew by 3.2%, slightly higher than the 3.1% recorded in the previous year.Transport and Communications activities expanded by 6.5% in 2004 as opposed to 6.1% in 2003. During the same period real estate, renting and business activities grew by 6.9% compared to 6.5% in 2003.Education, including services provided by public and private operators grew by 7.2% in 2004, compared to 5.3% in 2003, while health and social work expanded by 8.8% compared to 7.0% in 2003. Electricity, gas and water supply registered a growth of 4.2% as opposed to 4.6% in 2003.2.2 ConsumptionLast years economic performance was once again influenced by internal demand. Total final contribution of consumption to GDP at market price was estimated at 77.3%, compared to 75.1% in 2003. Real final consumption expenditure, increased by 6.3% in 2004, compared to a 4.5% rise in 2003. This expansion in the consumption rate, which is much higher than the GDP growth rate, is clearly inflationary and has a negative direct impact on trade balance and budget deficit. It must be noted that private consumption represented 83.1% of total consumption in 2004, as opposed to 82.8% in 2003. A growth of 6.7% was observed in the consumption of households in 2004, against 4.9% in 2003. This is the highest growth rate recorded since 1989. On the other hand, the share of public sector consumption amounted to 16.9% of total consumption in 2004, showing a slight drop from the 17.2% observed in 2003. Public consumption grew by 4.4% compared to an increase of 2.6% in 2003.In 2004, the continued growth observed in total consumption has been largely sustained by the significant increase in average monthly income earnings of households. The average monthly earnings in large establishments grew by 12.8% between March 2003 and March 2004, to reach Rs. 11, 084. A general upward trend was observed in all industrial groups. The largest increase (+24%) was noted in public administration, following the implementation of the PRB in July 2004.Table 3 Consumption2001200220032004Aggregate Final Consumption Household Central GovernmentRs b Rs. b Rs. b97.0 80.2 16.8106.6 88.3 18.3118.3 98.1 20.2135.1 112.2 22.9Consumption as a % of GDP at MP%73.475.075.177.3 Real Agg. Final Consumption growth o Household o Central Government% % %3.3 3.0 4.73.2 3.3 4.14.5 4.9 2.66.3 6.7 4.4Average monthly earnings (March )Rs.8,7019,1599,82611,084 Change in monthly earnings, Nominal%6.45.37.312.82.3 Savings InvestmentGross national savings, measured by the difference between Gross National Disposable Income and Total Consumption, increased in nominal terms by 1.8% to reach Rs 40.7 billion in 2004 from Rs 40.0 billion in 2003. Consequently, the saving rate, calculated as the ratio of GNS to GDP at market prices, showed a decline from 25.4% in 2003 to 23.3% in 2004. This decline results from an increase in both public and private expenditure.Table 4 Savings and investment2001200220032004Gross National Savings (Rs. Billion)37.638.740.040.7Nominal Change (%)+2.8+3.4+1.8GNS as a % of GDP at MP (%)28.427.325.423.3GDFCF (Rs. billion) Private Sector Public Sector29.8 20.5 9.331.4 21.6 9.835.7 21.8 13.838.9 25.6 13.4Real Change in GDFCF (incl aircrafts and vessels) , %+2.7+1.9+10.0+5.5Real Change in GDFCF (Excl. aircraft and vessels), %-2.6+6.1+7.9+8.2GDFCF as a % of GDP at MP22.522.022.622.3Investment, meas ured by the Gross Domestic Fixed Capital Formation (GDFCF), increased to Rs 38.9 billion in 2004 from Rs 35.7 billion in 2003. In real terms, including the purchase of aircrafts and marine vessels, total investment has followed an upward trend of 5.5% in 2004, but lower than the 10.0% growth recorded in 2003. It is interesting to note that net of the purchase of aircrafts and vessels, real investment grew by 8.2% in 2004, representing a better performance than in 2003, when it grew by 7.9%.Investment rate, measured as the ratio of GDFCF to GDP at market prices, has however gone down by 0.3%, to reach 22.3% in 2004 from 22.6% in 2003.Private sector investment continued to make up the bulk of GDFCF in 2004. It accounted for 65.6% of total investment in 2004, compared to 61.2% in 2003. This represented a real growth of 13.2% in 2004, after a negative growth rate of -2.2% in 2003. Higher private sector investment was accounted for by new hotels projects, where investment increased by 55 .8% in 2004, as opposed to a negative growth of 21.8% in the preceding year. Moreover, there were additional investments in spinning mills and other projects in the EPZ sector, with an increase of 45.0% in 2004 as opposed to a negative 7.7% in 2003.Inversely, the share of public sector investment fell from 38.8% in 2003 to 34.4% in real terms in 2004. In fact, real public sector investment dropped by 6.6% in 2004, after a high 37.0% real growth in 2003, resulting from a record increase of 133.3% in investment in the construction sector in 2003.The resource gap, given by the difference between savings and investment, was again positive in 2004. However, there has been a significant contraction of 59.7%, from Rs. 4.3 billion in 2003 to reach Rs 1.7 billion in 2004, since investment increased more than savings. The direct consequence of this contraction is a further deterioration of the external account of goods and services.2.4 Foreign Direct InvestmentIn 2004, FDI inflow fell by 8.6% to reach Rs 1.79 billion against Rs 1.96 billion in 2003. A sharp contraction was observed in the banking sector, where only Rs. 121 million were invested in 2004, as opposed to a high Rs. 1.3 billion in 2003.In contrast, higher investments were recorded in the telecommunications sector in the wake of further liberalisation. Similarly, a total of Rs. 1.08 billion were invested in 2004 in other sectors of the economy, including IT, compared to only Rs. 485 million in 2003. The EPZ sector also attracted more FDI in 2004, with Rs. 248 million, compared to Rs. 77 million in 2003. The same upward trend was observed in the tourism sector, from Rs. 103 million in 2003 to Rs. 121 million in 2004.Table 5 Foreign Investment, Rs million20002001200220032004Foreign Direct Investment7,265*93697919661,796EPZ834177248Tourism100100103121Banking06003161301310Telecoms720400038Others433335224851079Direct Investment Abroad333832781166909Net Foreign Direct Investment6,932853701800887* Includes receipts from the sales of Mauritius Telecom shares to France Telecom of Rs 7.2 billion1 Revised EstimatesConcerning outward investment, a high figure of Rs. 1.2 billion was recorded in 2003. However, in 2004, it fell to Rs. 887 million.2.5 Balance of PaymentsThe overall balance of payments in 2004, measured as a change in foreign reserve assets excluding valuation changes of the Bank of Mauritius, showed a surplus of Rs. 4.2 billion, compared to a surplus of Rs. 6.2 billion in the preceding year.In the first three quarters of 2004, the current account recorded a deficit of Rs. 2.3 billion, compared to a surplus of Rs. 1.8 billion in the corresponding period in 2003, reflecting a deterioration in the visible trade account. The balance of trade worsened from a surplus of Rs. 988 million in the first three quarters of 2003 to a deficit of Rs. 3.0 billion in the corresponding period of 2004.The capital and financial account, inclusive of reserves, recorded a net outflow of Rs. 163 million in th e first three quarters of 2004 as opposed to a net outflow of Rs. 1.6 billion in the same period in 2003.At the end of December 2004, Net International Reserves amounted to Rs. 52.8 billion, 8% higher than in December 2003, when it reached Rs. 48.9 billion. Based on the value of the import bill, exclusive of the purchase of aircrafts and vessels, the level of net international reserves represented 39.6 weeks on imports at the end of December 2004. For the corresponding figure in 2003, it represented 36.6 weeks of imports.2.6 External TradeTable 6 External Trade, Rs Billion2001200220032004Trade in goodsExports of goods excl freeport activities (f.o.b)47.547.346.248.9Export of goods freeport activities7.36.66.86.8Imports of goods excl freeport activities (f.o.b)53.856.057.567.6Imports of goods Freeport activities5.24.23.93.8Merchandise trade balance* 4.2 6.3 8.4 15.7Trade in servicesExports of services35.634.435.739.8Imports of services23.623.725.330.0Balance of trade in services1 2.010.710.411.8Overall trade balance7.84.32.0 3.9* Both Exports and imports are calculated on an f.o.b basisThe overall balance of trade in goods and services marked a significant deterioration in 2004. In fact, there was a shift from a trade surplus of Rs. 2 billion in 2003 to a trade deficit of Rs. 3.9 billion in 2004.There was a sharp increase in the deficit in visible trade, which worsened by 87.1% in 2004. Trade in goods was largely biased against imports, therefore resulting in a faster growth in imports, which soared by 14.6% compared to a low 3.3% in 2003. Exports however grew at 7.6% in 2004 as opposed a meagre 0.5% in the preceding year. On the other hand, trade in services fared well, registering a surplus of Rs. 11.8 billion in 2004, representing 13.5% more than in the previous year.Much of the increase in merchandise imports in 2004 was associated with investment projects, both in the public and private sector. For instance, appreciable increases were noted in the c.i.f value of cement (+57.6%), machinery and transport equipment (+25.9%), crude materials including textile fibres (+46.2%), and telecommunications equipment (+80.3%). Others are linked to an increasing food bill, with surge in the c.i.f value of food items (+14.9%) and of road vehicles (+53.1%).In fact, it is worth noting that in the fourth quarter of 2004, additional projects and events continued to contribute to boost the import bill. There were also new investment projects in EPZ and in energy production and the significant rise in the international price of petroleum products. Finally, the appreciation of the Rand (+13.2%), the Pound Sterling (+9.1%), the Australian Dollar (+9.2%) and the Euro (+7.1%) also contributed to the escalating visible trade deficit.Box 1 Exports lack dynamicsAlthough the Mauritian rupee continued to depreciate against major currencies, including the Euro, exports growth remained relatively static over the past few years. A combination of factors resulted in such a situation. Our markets remained relatively undiversified, with a high concentration in Europe. In the past few years, especially since the advent of the Euro in 2000, the Euro Zone has been relatively less dynamic than other countries like China and the US. Our exports to the most dynamic zones have remained however low. Some of the factors responsible for this lack of dynamism include erosion of our long-standing preferences, rising costs of production and the mismatch of skills on the labour market.Trade in services on the other hand, recorded a surplus of Rs. 11.8 billion, 13.5% higher than in the previous year. This is in part, due to higher earnings from the travel industry benefiting from the windfall gains of a strong euro and a strong pound sterling. Exports of services surged by 11.4% in 2004, from Rs. 35.7 billion in 2003 to Rs. 39.8 billion in 2004, whereas there was a 10.6% increase in the imports of services during the same period of time, from Rs. 25.3 billi on to Rs. 30.0 billion.2.7 InflationTable 7 Inflation Rate, %Calendar YrInflation rate (%)Fiscal YrInflation rate (%)20015.401/026.320026.402/035.120033.903/043.920044.704/055.5The inflation rate, as measured by the percentage change in the yearly average consumer price index reached 4.7% for calendar year 2004 compared to 3.9% in 2003. This was mainly the result of a combination of domestic and external factors.There were significant increases in the price of subsidised flour (+17%) and rice (+40%). The rise in the price of flour led to an increase in the price of bread by 12%. The price of other food items, such as chicken (+8.8%), fish (+8.5%) , beef (+9.7%), and frozen mutton (+15.2%) also went up in 2004.In addition, the rise in international oil prices had spill over effects on the domestic economy. There were three successive increases in the price of gasoline and diesel oil. The price of gasoline increased by a total of 27.9% and the price of diesel oil rose by 45.0%, theref ore causing subsequent surges in electricity tariffs (+5.1%), bus fares (+13.3%), taxi fares (+15.4%) and air fares (+16.0%).Finally, the prevailing high budget deficit and the sustained level of public investment also contributed to inflationary pressures.2.8 Employment/ UnemploymentUntil 2003, labour force statistics were estimated on the basis of the Population census or Labour Force Sample Survey. A new methodology, named the Continuous Multi Purpose Household Survey (CMPHS) was introduced in March 2004 to estimate the labour force, employment and unemployment rate. It is based on a sample of households that presently covers a total 8,640 households for the whole of 2004. Estimates are conducted on a quarterly basis, on 2,160 households per quarter.In the new CMPHS, the lower age cut-off point to estimate the labour force was brought to 15 years instead of 12 years used previously. A few inconsistencies with regard to the results of the survey have been noted, which probably ind icate some weaknesses in the new methodology.The table below gives the estimated figures for the 3 quarters of 2004Table 8March 2004 EstimatesJune 2004 EstimatesSeptember 2004 EstimatesLabour force Male Female541,100 348,700 192,400540,700 347,500 193,200527,800 349,400 178,400Employment Male Female494,100 328,400 165,700491,200 324,600 166,600483,500 329,800 153,700Unemployment Male Female47,000 20,300 26,70049,500 22,900 26,60044,300 19,600 24,700Unemployment Rate (%)8.79.28.4Contrary to what one would logically expect, the CMPHS estimates indicate a downward trend in the labour force over the three quarters. From March to June, there was a fall of 400 people in the labour force. However, a larger fall was observed, with a contraction of 12,900 jobs from June to September