WILLEMSTAD – According to the Central Bank of Curaçao and St. Maarten (CBCS), preliminary data suggest that real GDP contracted in the monetary union of Curaçao and Sint Maarten in 2018 as economic activity dropped in both economies. Following a contraction of 1.7% in 2017, real GDP fell further by 1.9% in Curaçao in 2018. Meanwhile, Sint Maarten recorded a deep economic contraction of 8.1% after a decline by 4.8% in 2017. In addition, inflationary pressures rose in both Curaçao and Sint Maarten.
The real GDP contraction in Curaçao was the result of a decline in both net foreign and domestic demand. The negative contribution of net foreign demand was the result of a decline in the export of goods & services combined with higher imports. The drop in domestic demand was caused by both private and public demand. The decline in private demand was the result of lower consumer spending, while private investment spending remained muted in 2018 compared to 2017. Meanwhile, public demand shrank on the back of lower investments and consumption by the government. A sectoral assessment reveals that Curaçao’s real GDP contraction was ascribable to less activity in the transport, storage & communication, manufacturing, construction, financial intermediation, and wholesale & retail trade sectors.
Sint Maarten’s real GDP contraction during 2018 was caused by a decline in net foreign demand as exports of goods & services dropped significantly while imports went up. By contrast, domestic demand rose and thereby moderated the economic contraction. The ongoing clean-up and reconstruction efforts in the aftermath of Hurricane Irma caused the increase in domestic demand that was reflected by higher private investment, public investment, and public consumption. However, private consumption dropped because of the increased unemployment and reduced wealth. With the exception of the construction sector, real value added dropped in all sectors of the economy of Sint Maarten because of the severe shock caused by Hurricane Irma.
On the fiscal front, challenges remained for both Curaçao and Sint Maarten during 2018. The government of Curaçao continued with its efforts to realize a balanced budget and comply with the fiscal rules as stipulated by the Kingdom Law of Financial Supervision of Curaçao and Sint Maarten. According to the latest projections, the government of Curaçao will register a surplus on its current budget, following a deficit in 2017. Meanwhile, Sint Maarten has yet to recover from the enormous damage caused by Hurricane Irma that affected both the economy and the public finances. As a result, the deficit on the current budget of the government of Sint Maarten is projected to widen further in 2018 compared to 2017.
The economic prospects for the monetary union in 2019 are brighter. In Curaçao, real GDP is projected to grow by 0.4% sustained by increased domestic and net foreign demand. For Sint Maarten, a real expansion of 2.3% is forecasted supported also by gains in domestic and net foreign demand. However, risks to this outlook are tilted to the downside and include a further deepening of the crisis in Venezuela, delays in the process of finding a strategic partner for the refinery, the loss of correspondent banking relations, delays in the execution of planned private sector investments due to lengthy and complex administrative procedures, and delays in the disbursement of funds intended for the reconstruction of Sint Maarten.
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