This is according to a survey of leading private sector companies showed on Monday.
The Mauritius Chamber of Commerce and Industry's quarterly confidence index came in at 77.5 points, down from 79.6 points the previous quarter.
The Indian Ocean island is trying to shift from an economy focused on sugar, textiles and tourism towards luxury real estate, offshore banking and medical tourism.
The Bank of Mauritius has cut its 2014 economic growth forecast to 3.4-3.6 per cent from its April projection of a 3.7-4.0 per cent expansion.
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Chamber of commerce economist Renganaden Padayachy told a news conference on Monday that more than 60 per cent of business leaders interviewed during the survey said they had noted a drop in demand during the current quarter.
"The growth level over recent times has been insufficient to push demand, thus impacting on the performance of local enterprises," he said.
Padayachy said cutthroat competition among operators coupled with competition from the informal sector have also hit margins.
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Mauritius' economy grew 2.8 per cent year-on-year in the first three months of 2014, the worst first quarter performance for five years. But the central bank has previously said growth would pick up in the second half of the year due to improving economic conditions in Mauritius's main trading partners.