Update Country Report Maldives 07 Aug 2020

Event

According to the National Bureau of Statistics, real GDP declined by 5.9% year on year in the first quarter of 2020, compared with growth of 8.7% in the previous quarter.

Analysis

The slump in real GDP in January-March was led by a 10.3% drop in value added from the tourism sector, which accounts for almost a quarter of the Maldives' GDP. According to data from the Ministry of Tourism, there was a significant dip in the number of visitor arrivals during the three-month period because of the coronavirus (Covid-19) outbreaks in China and Europe-the joint sources of around 70% of total inbound tourists.

The other largest sectors of the economy, transport and communications and wholesale and retail trade, also recorded year-on-year falls in value added of 2.3% and 14.1% respectively. These declines were partially offset by healthy growth in public administration and real estate. On the whole, the tertiary sector, which contributes nearly three-quarters of total economic value added, shrank by 3% compared with the year-earlier period. The primary and secondary sectors also recorded double-digit contraction on a year-on-year basis, although they provide only a negligible share of the country's GDP.

The latest data are broadly in line with our expectations. The economy will face a deep recession in 2020, primarily on account of the coronavirus pandemic, which forced the Maldivian administration to suspend tourism activity for almost four months between March and July. Other economic activity was stymied by restrictions on the movement of people and the imposition of lockdown measures in the greater Malé region-the country's capital and main urban area.

Real GDP is expected to have collapsed even more sharply in the second quarter of 2020 than in January-March. Despite the reopening of the tourism sector from mid-July, a substantial pick-up in economic growth is unlikely to occur during the second half of the year. Tourist arrivals will remain constrained by dampened global demand for leisure travel as most countries across the world experience economic slowdown (or even recession) this year. Tourism earnings will rise gradually from 2021, but we do not expect arrivals to return to pre-pandemic levels before 2022.

Impact on the forecast

The latest data reaffirm our view that real GDP will shrink by 15.2% in 2020, before rebounding to growth of 8% in 2021.