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Trouble in Paradise as Seychelles Economy Shrinks

June 27 (Bloomberg) -- Sun-kissed beaches and crystal-clear seas are no longer enough to guarantee growth for the Seychelles’s economy.

Gross domestic product declined the most in four years, dropping 2.9 percent in the first quarter compared with the previous three months, as European tourists stayed away and tuna catches dropped. That was the first contraction in a year.

A slow recovery in Europe is curbing tourism in the Indian Ocean island, which relies on visitors’ spending on luxury hotels, restaurants and beer for more than two-thirds of foreign income. Tourism makes up a quarter of the economy and employs 25 percent of the workforce in the nation of 90,000 people.

“Tourism is a huge driver of the economy, for jobs, for foreign exchange, for growth,” Thea Fourie, senior economist for sub-Saharan Africa at risk-analysis company IHS Global Insight, said by phone from Pretoria, South Africa. “Although the European Union’s growth is somewhat better, it is still far from strong.”

Accommodation and food services contracted 5.5 percent in the quarter, fishing shrank 17.9 percent and manufacturing of beverages and tobacco fell 14.7 percent, the statistics office said in an e-mailed statement today. Tuna fishing and processing accounts for almost 5 percent of GDP and 7 percent of jobs.

‘Quite Challenging’

“The first quarter was quite challenging in terms of tourism, which has underperformed,” Finance Minister Pierre Laporte, said by phone today. “Some of the sectors, such as the fishing sector, are quite seasonal. I think we’ll get a better picture in the second quarter.”

Visitor arrivals in Seychelles fell 6.2 percent to 57,489 in the three months through March compared with the prior quarter, according to the statistics office. Almost 70 percent of tourists were from Europe.

GDP growth forecasts will probably be cut as tourism slides, Fourie said. The International Monetary Fund estimates expansion of 3.7 percent this year and 3.8 percent in 2015, compared with 3.5 percent last year.

To contact the reporters on this story: Rene Vollgraaff in Johannesburg at rvollgraaff@bloomberg.net; Nicholas Rainer in Victoria at nrainer@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net Sarah McGregor, Antony Sguazzin

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