Shifting European Consumer Sentiment, Tourism Slowdown and Strengthening Euro

Much has happened locally in the past few weeks on the economic front, starting with the publication of tourist arrivals for the first quarter of 2025. Overall, arrivals dropped 5.8% over the period, driven by a retreat from European travellers amid weak economic environment and lower confidence among households and businesses.  This reflects ongoing worry among consumers regarding their future economic situation, which translated in retail sales for the Euro-zone lagging consensus expectations of 0.4% to reach 0.3% month over month in February. As a consequence, retail trade confidence indicators also dipped in March, with worries over the deterioration of their expectations for the next 3 months and volume of stocks. Another worry among retailers is the potential dumping of Chinese goods in European markets as a result of the ongoing trade war, which would result in higher competition for local retailers.  Uncertainty over current economic context have led retail companies to review their employment plans over the period, which resulted in a drop in the European Employment Expectations Indicator, which dipped below its long-term average. Much like changes in expectations over future economic outlook can alter the behaviour of companies, the same can be observed with consumers. When consumers feel less confident over their employment or the economic outlook, the first signs of this change in behaviour can be observed at the level of durable goods, since their purchase usually require consumers to use external financing to fund their purchase. Another sign of change in behaviour is the cut back on discretionary spending. This is the case for categories such as Apparels, as respondents from a survey from McKinsey shares, they intent to cut back spending on this category. Other categories such as home electronics, saw a drop in intent to spend in France, Italy, Spain and the UK. More interestingly, French and German consumers indicated that they intended to cut spending on international flights, while intention to spend on hotels and resort stays increased, an indication that consumers in both countries were more willing to go on vacation closer to home rather than abroad.  

 

This was reflected in the local tourist arrivals as the country recorded fewer arrivals from both France, the country’s main market and Germany, with the latter accusing the largest decline out of the two. Overall, there were 15,000 (-39.2%) less German travellers in the first quarter of 2025 compared to last year. Weakness in the French market was less severe as the country recorded 2,040 (-2.4%) fewer travellers than last year. Likewise, arrivals from the UK fell by 2,012 (-6.2%). In total, the country recorded 20,173 (-5.8%) fewer travellers in the first quarter. In a similar fashion, the growth in arrivals recorded by the Seychelles was flat during the period (+0.3%) , as similar markets, essentially Germany weighted on total arrivals.  While the narrative for weaker economic outlook resulting in lower arrivals remains compelling, both Maldives and Sri-Lanka registered an increase in the number of German travellers during the period. Same can be observed for French and British travellers who showed rising interest in these destinations. A first observation could be that, both Mauritius and the Seychelles are further away to Europe compared to the Maldives and Sri-Lanka, which results in higher air ticket fees, resulting in higher overall cost of stay. On another note, arrivals from Germany for both Maldives and Sri-Lanka have been more resilient than those of Mauritius and Seychelles, which could hint to the idea that perhaps we do not attract the same type of German tourists. Among other observations was the decline in arrivals from Russia to Mauritius. Following the return of Aeroflot to Mauritius last year, arrivals from Russia grew by 84.3%, however external factors on the geopolitical front resulted in Aeroflot along with other Russian carriers to lose access to Boeing and Airbus services such as maintenance due to sanctions. Another observation is the fact that, arrivals from Russia to other Indian ocean island destinations did not drop, something that could come from their open-air access which provides multiples options for travellers to reach their destinations.   

 

On the economic front, the anticipated slowdown in tourism activity is expected to weigh on economic output in 2025, as highlighted in the IMF’s 2025 Article IV Consultation. Overall, the organisation’s staff project that the Mauritian economy will expand by 3.0% this year. This would bring growth closer to the country’s estimated potential output—defined by long-term trends in labour force growth and productivity gains—and thereby close the positive output gap that has contributed to inflationary pressures in recent years. In its latest Monetary Policy Committee (MPC) meeting, the Bank of Mauritius emphasised the positive output gap as one of the key indicators informing its policy stance. Another critical factor under close observation is the trajectory of the US dollar, Mauritius’ primary import currency. Recent developments in global financial markets have seen investors gradually rotate out of US assets, and consequently, the US dollar has come under pressure. Since the beginning of the year, the US Dollar Index has declined by 9.71%, suggesting a potential shift in investor sentiment away from the USD as a safe-haven currency. In contrast, the Euro Currency Index has appreciated by 10.14% over the same period. This trend was reflected in the sharp appreciation of the EUR/MUR exchange rate last week, following the USD’s abrupt weakening against the Euro. In the short to medium term, a stronger Euro against the MUR may offer some relief to local tourism operators by boosting the purchasing power of European travellers and partially offsetting the decline in tourist arrivals. Conversely, a weaker USD could contribute to lower import prices, thereby helping to ease domestic inflationary pressures. These dynamics will undoubtedly be taken into consideration during the upcoming MPC meeting scheduled for May 7th. 

 

On the equity front, the SEMDEX ended the week in negative territory, down by 0.35% to 2,362.09 points. On the other hand, Heavyweights’ losses were more contained as the SEM-10 inched down 0.084%. The index was supported by the trading activity around accounts publication of MUA and corporate action on ENL and Rogers. As a result, transactions on MUA and ENLG accounted for 16.1% of total market turnover in the past week as both stocks ended the week in positive territory. Overall total market turnover (TMT) reached Rs 195.6m in the past week, down 4.8% from 205.5m in the past week due to low trading activity on Easter Monday. Trading activity remained geared towards MCBG, who accounted for 56.9% of TMT. Foreigners were net sellers to the tune of Rs 6.2m (OM+DEM) with MCBG being the main driver of foreign outflow (-7.2m), followed by SBMH (-3.4m). Contrastingly, foreign investors showed interest in MUA shares, as they were net purchasers on the counter to the tune of Rs 4.0m. The stock featured among this week’s top performers, gaining 13.76% and closing at Rs 62.00. This week’s top gainer was ENLG, which surged 19.61% to close the week at Rs 27.45. Among other movers, hotels showed contrasting results. While NMHL gained 4.76% to reach Rs 13.20, SUN (-0.14%) and LUX (-0.10%) were mostly unchanged.  

 

Change in tourist arrivals
Q1 - (24/25)	Mauritius		Seychelles		Maldives		Sri-Lanka		Total - IOC
Change	Number	%	Number	%	Number	%	Number	%	Number	%
France	- 2,040	-2.4%	-436	-4.1%	3,364	14.9%	9,984	29.9%	10,872	7.2%
UK	- 2,012	-6.2%	206	4.3%	13,705	25.5%	10,886	18.5%	22,785	15.2%
Germany	-14,986	-39.2%	- 8,724	-42%	1,072	2.4%	2,025	4.2%	-20,613	-13.6%
China	-18	-0.6%	335	48%	10,301	15.9%	-3,130	-7.3%	7,488	6.7%
India	2,214	21.8%	83	4.9%	-1,224	-3.6%	22,036	22.9%	23,109	16.3%
Russia	-4,485	-31.0%	1,018	8.3%	8,696	14.6%	2,363	2.6%	7,592	4.3%
Total Arrivals	-20,173	-5.8%	281	0.3%	28,414	4.7%	86,492	13.6%	95,014	5.6%
Source: Statistics Mauritius, Ministry of Tourism Maldives, Sri Lanka Tourism Development Authority, National Bureau of Statistics Seychelles