Update Country Report Maldives 06 Aug 2019

Event

According to the National Bureau of Statistics, real GDP growth slowed to 3.1% year on year in the first quarter of 2019, down from 4.7% in the previous quarter.

Analysis

The economy is heavily skewed towards the tertiary sector, with services accounting for about three-quarters of total economic output, largely driven by tourism activity. Despite the Maldives being an archipelago, the fisheries sector is not particularly prominent and provides only a negligible share of the country's GDP.

Although real GDP growth slowed overall in January-March, earnings from tourism-a sector that alone accounts for more than a quarter of the Maldives' nominal GDP-increased by a strong 9.1% year on year. The sharp pick-up in tourism activity compared with the previous three quarters was supported by the opening of several new accommodation facilities for tourists and the addition of new international air routes. Output from the transport and communications sector, the second largest in the economy, recorded a healthy annual increase of 5.8%. However, growth in these sectors was offset by a decline in construction activity, in line with the gradual unwinding of infrastructure projects funded by Chinese debt under the current administration.

The latest data are broadly in line with our projection that economic growth will slow in 2019 compared with 2018. The shift in the country's political affiliations from China towards India will have some negative impact on the inflow of tourists from China, the largest source of tourists to Maldives. This, coupled with the incumbent government's efforts to rein in public debt, will weaken investment. This will, in turn, dampen real GDP growth. Nevertheless, tourist arrivals from India and other markets (mainly European countries) will provide support for GDP growth.

Impact on the forecast

Despite the relatively subdued performance in the first quarter, we maintain our forecast that economic growth will only slow to 5% in 2019, with tourism and transport services providing a lift to the country's growth rate in the remaining three quarters of the year. Nonetheless, the latest data highlight downside risks to this forecast.