Economic recovery confirmed despite poor health

The Overseas Department Issuing Agency (IEDOM) publishes an annual summary of the economic and financial situation of Reunion in 2021. This note provides an initial rating for 2021 and describes the outlook for 2022.

Strong economic recovery after an unprecedented shock
In 2021, Reunion’s health deteriorated significantly, but in 2020 it was relatively spared at the forefront of the Covid-19 epidemic. However, Reunion’s economy is strong and the rebound that began at the end of 2020 has been confirmed. The business leaders surveyed remain morale and the Business Environment Index (BCI) is improving throughout the year. Therefore, the 2021 average is 111, well above the long-term average and up 20 points in a year.
This recovery dynamics is relevant to all sectors of activity, even if some have not returned to pre-crisis situations. This is the case for tourism companies, where activity during the year is clearly increasing, but overall it remains far from 2019 levels. On the other hand, in the construction industry, the activity in 2021 will be revived by catching up with the closure in 2020. Companies in the sectors that were limiting the impact of the 2020 crisis (commercial services, trade, industry, agriculture and agricultural food sectors) reported a median increase in annual sales of 7%.

Household consumption is dynamic and companies are recruiting
In 2021, consumption is picking up again. Over the course of the year, bank card payments (amounts) have increased by 6.4% annually, and household imports have accelerated (+ 8.7% in value). Consumer loans increased by 4.8% annually.
On the business side, the recovery of activity has created a need for a workforce. There are many entries into the apprenticeship encouraged by extraordinary assistance. Thus, private sector salaryman employment increased by 5.7% over the year, making La Reunion the most dynamic region of France in terms of employment.

Banking continues to be strong

In 2021, banking operations at Reunion were maintained and returned to a dynamic approach to what it was before the Covid-19 crisis. The financial situation of households and businesses remains good overall. The household savings surplus observed since the Covid-19 crisis remains significant. In 2021, Reunion Bank’s savings increased 6.6% after an exceptional increase of 8.8% in 2020. A 1.8% increase in financial assets from + 33% in 2020 to 2021. This level is partly related to bank debt, which remains high due to the large grant of National Guarantee Loans (PGE) in 2020.

Uncertainty about price changes that weigh on the outlook for 2022
Reunion’s consumer prices rose 1.4% on average annually compared to 2020, with oil prices soaring, especially after falling in early 2020. Reunions accelerated significantly at the end of the year if end-consumer price increases remained relatively restrained on average. In 2021,
Companies are heavily affected by rising costs (purchase costs and freight rates), and more and more companies are declaring that rising selling prices must be passed on.

Therefore, inflation should accelerate further in 2022, especially in the global situation characterized by the war in Ukraine (especially leading to higher commodity prices) and the ongoing supply turmoil caused by the health crisis.