Mauritius Economy Faces Slower Growth as Geopolitical Risks Weigh on Momentum

IMF sees 2026 growth at 2.8%; tourism remains resilient while inflation, trade deficit and foreign exchange reserves face external pressures

Mauritius’ economic growth is expected to moderate in 2026 as geopolitical tensions, higher commodity prices and weaker external demand weigh on economic activity. The IMF projects real GDP growth at 2.8% in 2026, compared with 3.2% in 2025, while tourism continues to provide support to the economy.

Growth Outlook Faces External Pressures

According to the IMF’s July 2026 Article IV Consultation, Mauritius’ real GDP growth is projected to slow from 3.2% in 2025 to 2.8% in 2026 under the baseline scenario. The moderation is linked to the ongoing Middle East conflict, which is expected to affect economic activity through weaker tourism demand and higher commodity prices.

Over the medium term, growth is forecast to gradually recover to 3.2%, supported by higher investment and continued strength in the services sector, particularly tourism and financial services.

Under the IMF’s downside scenario, which assumes a prolonged conflict, economic growth would slow further to 1.9% in 2026. This scenario reflects a sharper decline in tourism, weaker domestic and external demand, and tighter global financial conditions. The IMF also cautions that a prolonged conflict could increase inflationary pressures and widen the current account deficit.

The 0.9 percentage point difference between the baseline and downside scenarios highlights Mauritius’ exposure to external shocks, particularly through tourism and energy prices. The ratification of the Chagos agreement and lower geopolitical tensions, however, could provide additional support to economic growth and public finances.

2026 Growth Forecasts

Growth projections for 2026 are broadly similar across the IMF, Bank of Mauritius and Statistics Mauritius.

The Bank of Mauritius maintained its 2026 growth forecast at 2.8% in its latest forecast released this month, unchanged from its May projection. The bank cited the resilience of key service industries, particularly tourism and financial services, while noting risks from geopolitical tensions, supply chain disruptions and weaker global demand.

Statistics Mauritius has projected slightly stronger growth of 3.0%, supported by continued expansion in key service industries, higher public investment and a modest recovery in manufacturing activity.

Despite differences in the projections, all three institutions expect growth to moderate compared with 2025, reflecting the increasing impact of external pressures on Mauritius’ economic outlook.

Tourism Activity Recovers in July

Mauritius recorded stronger tourism activity in July 2026, with tourist arrivals rising 5.4% year-on-year to 136,162. Cumulative arrivals for January-July 2026 increased 2.1% YoY to 804,633, supported by stronger inflows earlier in the year.

Europe remained the largest source market, accounting for 56% of arrivals. France and Germany represented 19.8% and 7.5% of total arrivals, respectively, with arrivals from France increasing 0.3% YoY and those from Germany rising 15.4%.

Arrivals from India increased 14.5% YoY, while arrivals from the United Kingdom declined 14.6% YoY. The data indicates continued diversification of source markets and stronger traction from Asia, although Europe remains central to Mauritius’ tourism sector.

Gross tourism earnings increased 12% YoY to MUR 7.8 billion in June 2026. During January-June 2026, cumulative tourism receipts rose 17.9% YoY to MUR 55.89 billion, reflecting higher spending per tourist.

The tourism sector has so far remained resilient amid external shocks, supported by the recovery in global travel demand, diversified source markets, Mauritius’ reputation as a safe and stable destination and strong air connectivity.

Mauritius was the only destination among its key regional competitors — Seychelles, Bali and the Maldives — to record positive growth in tourist arrivals during January-May 2026.

However, geopolitical uncertainty and elevated oil prices could affect international travel demand through higher airfares and weaker consumer confidence. The sector’s trajectory will depend on the duration and severity of geopolitical tensions, further diversification of source markets and its ability to maintain its competitive position.

Inflation Rises While Core Inflation Moderates

Headline inflation increased to 4.4% YoY in July 2026 from 3.7% in June. The increase reflected broad-based price pressures and was driven mainly by food and non-alcoholic beverages, which rose 4.0% YoY despite the implementation of food subsidies.

Alcoholic beverages and tobacco prices increased 3.9% YoY, following the 10% increase in excise duties announced in the National Budget 2026-27.

At the same time, Core 2 inflation declined to 4.3% from 5.9%, remaining slightly below headline inflation. This suggests that part of the recent rise in headline inflation was linked to relatively volatile components rather than a broad-based increase in underlying inflationary pressures.

In its August 2026 MPC release, the Bank of Mauritius lowered its 2026 headline inflation forecast to around 5.0% from 5.5% previously. The revision reflected recent inflation outcomes and budgetary measures, including additional subsidies on selected essential goods.

The inflation outlook remains closely linked to global oil prices and geopolitical developments. Renewed tensions could push up oil and food prices and increase shipping costs, adding to imported inflationary pressures.

Given Mauritius’ high dependence on imports, external shocks could pass through to domestic prices relatively quickly, potentially affecting transport services and other energy-intensive sectors while keeping food inflation elevated.

Key Policy Rate Held at 4.75%

The Bank of Mauritius maintained the key rate at 4.75% per annum following the August MPC meeting.

The decision reflected a cautious approach as the MPC balanced continuing inflationary pressures against downside risks to economic growth, while also assessing the effects of previous policy tightening and recent budgetary measures.

Stress tests indicated that the banking sector remains resilient, supported by adequate capital and liquidity buffers. The MPC therefore kept the key rate unchanged while continuing to monitor developments affecting inflation and growth.

Trade Deficit Widens on Higher Fuel Imports

Mauritius’ merchandise trade deficit widened to MUR 22.4 billion in May 2026 from MUR 16.6 billion in May 2025. Imports increased 19.7% YoY, while exports declined 6.2%.

The increase in imports was mainly driven by a 108.6% rise in mineral fuel imports, reflecting a higher oil import bill following the escalation of geopolitical tensions in the Middle East.

Export performance weakened due to lower shipments of animals and vegetable oils, fats and waxes; machinery and transport equipment; chemicals and related products; and beverages and tobacco.

For January-May 2026, the merchandise trade deficit increased to MUR 92.4 billion from MUR 81.9 billion in the corresponding period of 2025. Imports rose 8.0% YoY, while exports declined 0.8%.

Higher imports of mineral fuels, lubricants and related materials increased 41.8%, reflecting the higher fuel import bill. Imports of food and live animals also increased 3.4%.

These increases were partly offset by a 12.9% decline in imports of beverages and tobacco and a 7.9% reduction in manufactured goods imports, with the latter reflecting a sharp decline in motor vehicle imports.

On the export side, growth was constrained by a 75.0% decline in exports of mineral fuels, lubricants and related materials. This was partly offset by increases in exports of food and live animals, up 7.6%, and ships’ stores and bunkers, up 9.1%.

The near-term merchandise trade outlook remains challenging. Continued elevated oil prices and volatility could keep the trade balance under pressure, although the extent of any deterioration will depend on the duration of the geopolitical conflict and its effect on global energy markets.

Exports are expected to remain subdued amid weaker external demand and higher logistics costs associated with geopolitical tensions. Higher fuel prices and wider spillovers from geopolitical developments could also increase the import bill, particularly for petroleum and transport-related items.

Foreign Exchange Reserves Decline in July

Mauritius’ gross official international reserves fell sharply to MUR 461 billion (USD 9.7 billion) in July from MUR 523.1 billion (USD 11 billion) in June, representing a 13.5% decline.

Import cover, based on imports of goods and services excluding GBC services, declined to 13.7 months in July from 15.5 months in June. Under the Bank of Mauritius’ enhanced measure incorporating GBC-related imports, import cover fell to 10.0 months from 11.3 months.

In July 2026, the Mauritian rupee averaged MUR 47.9 per US dollar and MUR 54.7 per euro. Compared with June, the currency appreciated 0.8% against the USD and 1.6% against the EUR.

Over the three months to July 2026, the MUR depreciated marginally by 0.2% against the USD, taking its cumulative depreciation since January 2026 to 2.9%. Against the EUR, it appreciated 1.9% over the same three-month period, resulting in cumulative appreciation of 0.3% over January-July 2026.

The depreciation against the USD reflects persistent trade imbalances and increased foreign currency demand linked to higher import costs, particularly fuel. Global factors, including USD strength and heightened financial market pressures, also affected the currency.

The Bank of Mauritius injected USD 65 million into the foreign exchange market during January-June 2026, compared with USD 50 million during the corresponding period of 2025.

The MUR’s appreciation against the EUR was supported by stronger euro inflows from tourism receipts, the performance of the euro against major global reserve currencies and the continued stabilising role of the Bank of Mauritius in the foreign exchange market.

Going forward, tourism receipts, global commodity prices, USD strength and geopolitical developments are expected to influence exchange rate movements. The balance between foreign currency inflows and import-related demand will remain an important factor in determining the Mauritian rupee’s performance.

Key Economic Indicators: January-July 2026