PHILIPSBURG--The latest estimates of the Central Bank of Curaçao and St. Maarten (CBCS) indicate that economic growth was uneven in the monetary union during 2019.
While real gross domestic product (GDP) contracted by 1.9 per cent in Curaçao, St. Maarten recorded an expansion of 5.5 per cent.
The development in inflation also diverged between the two countries. In Curaçao, inflation rose from 2.6 per cent in 2018 to 2.8 per cent in 2019. In St. Maarten, inflation eased to 1.8 per cent in 2019 after peaking at 2.7 per cent in 2018.
Both domestic and net foreign demand caused the real GDP contraction in Curaçao in 2019. All components of domestic demand fell, but the decline was most pronounced in private consumption on the back of lower disposable income due to the higher inflation and a worsened labour market. Meanwhile, public consumption dropped as the government took measures to reduce outlays on goods and services and wages and salaries to lower the fiscal deficit, according to CBCS.
In addition, both private and public investments went down. Net foreign demand contracted due to a decline in exports, moderated by lower imports. A sectoral assessment reveals that Curaçao’s real GDP contraction was attributable mainly to a decline in real value added in the transport, storage and communication, manufacturing, construction and wholesale and retail trade sectors, moderated by growth in restaurants and hotels and financial intermediation sectors.
“St. Maarten is on a path of economic recovery following the devastation that Hurricane Irma caused to the country’s production capacity in 2017,” CBCS said.
St. Maarten’s economic expansion in 2019 was driven by increased domestic and net foreign demand. The growth in domestic demand stemmed from both private and public spending. Private spending rose by more investments, particularly reconstruction activities. In addition, private consumption was supported by the improved labour market.
The increase in public spending was driven by higher government consumption while investments remained muted. The positive contribution of net foreign demand to GDP growth was the result of an increase in exports, moderated by higher imports. The rise in exports reflected primarily the robust growth in the number of tourists who visited St. Maarten in 2019.
A sectoral assessment reveals that St. Maarten’s economic expansion was driven by increases in the manufacturing, utilities, construction, wholesale and retail trade, restaurants and hotels, transportation, storage and communication, financial intermediation, and real estate, renting and business activities sectors.
On the fiscal front, the government of Curaçao took several measures to improve the public finances. On the revenue side, the government worked on improving tax compliance and collection. Also, the government increased the excises on tobacco, liquor, beer and wine, and the sales tax rate on imports from six to nine per cent as of September 1, 2019. Furthermore, expenditures on particularly goods and services were reduced.
Hence, according to the latest projections, the government will register a balanced current budget in 2019.
In St. Maarten, the deficit on the current budget is projected to decline as a result of an increase in government revenues, moderated by higher expenditures. However, government still needs liquidity support to finance its deficit and comply with its financial obligations, CBCS said.
Growth is projected to remain uneven in the monetary union in 2020. In Curaçao, real GDP is projected to contract by 2.3 per cent caused by a decline in domestic demand, moderated by an increase in net foreign demand. In particular, the introduction of a general consumption tax ABB will affect domestic demand. However, if the refinery closes on January 1, 2020, the contraction will be deeper and will reach 5.2 per cent.
For St. Maarten, a real expansion of 3.0 per cent is forecast, driven by an increase in domestic demand. However, a decline in net foreign demand will put a drag on growth.
Risks to the outlook include a further deepening of the crisis in Venezuela and a possible increase of sanctions on Venezuela. Furthermore, the future of the refinery, de-risking efforts of domestic banks, delays in the implementation of structural measures, policy uncertainties and political instability could affect the outlook for the monetary union.
