SINT MAARTEN/CURACAO - “Growth is set to continue across the monetary union in 2024, although the pace of growth of the countries moves at different speeds. While real GDP growth in Curaçao is projected to accelerate to 4.8%, the pace of expansion in Sint Maarten is set to ease to 3.0%.
In line with the projected price developments in its main trading partners, inflation in Curaçao will decline further to 2.5%. In Sint Maarten, by contrast, inflation is expected to rise to 2.5% reflecting a delayed pass-through of international commodity price increases, according to the March 2024 Economic Bulletin by the Centrale Bank van Curaçao en Sint Maarten (CBCS).
Higher increase in private investments
The 2024 growth forecast for Curaçao is 0.4 percentage point higher than in the outlook of December 2023 on account of a stronger than earlier projected increase in private investments in particularly the tourism, utilities, real estate, and ship repair sectors.
Growth in 2024 will be sustained primarily by domestic demand as both public and private spending will rise. The projected gain in public spending will be driven by both government consumption and investment.
Net foreign demand is also set to increase as the projected growth in exports, driven mainly by increased activities in the tourism and transportation sectors, will surpass a higher import bill.
For Sint Maarten, the 2024 growth forecast has remained unchanged from the previous outlook. Like Curaçao, growth in Sint Maarten will be driven primarily by domestic demand. Private demand is set to increase, albeit at a slower pace than in 2023 due to the winding down of major construction projects, such as the airport.
In addition, public demand will rise on the back of higher government investments while consumption will drop. Net foreign demand will make a modest contribution to growth due to an increase in exports, moderated by a rise in imports.
More balanced risks
The outlook is subject to significant international and domestic risks. The international risks have, however, become more balanced since the Economic Bulletin of December 2023.
Downside international risks include a delayed shift to monetary policy easing by major central banks, including the Fed, which is currently assumed to start in the second half of 2024.
Such a delay would maintain the current high borrowing costs, affecting global growth and, hence, growth in the monetary union.
Other factors may also adversely affect growth in Curaçao and Sint Maarten, including a recession in the United States, the two countries’ main trading partner, and protracted geopolitical tensions like the war in Ukraine and a broadening of the conflicts in the Middle East to the Red Sea.
On the upside, an earlier easing of monetary policy due to a faster decline in inflation and a slower than expected withdrawal of fiscal support in major economies would support global growth with positive spill-over effects for the economies of Curaçao and Sint Maarten.
Ennia and COVID-19
The domestic risks are tilted to the downside. The main adverse risk is related to the resolution of ENNIA. Delays in concluding a viable resolution strategy could have a considerable negative macroeconomic and social impact.
However, since a headline agreement was signed recently between the key stakeholders, such as the government of Curaçao, the government of Sint Maarten, and the CBCS, this risk has moderated.
Another major downside risk to the outlook, particularly for the public finances, is related to the refinancing of the COVID-19 liquidity loans that the countries received amid the pandemic.
In October 2023, these loans were refinanced for one year against 3.4% interest for Sint Maarten and 5.1% for Curaçao, pending a viable resolution strategy for ENNIA. Refinancing these loans at more favorable conditions would be important for the fiscal sustainability of the countries.
The complete text of the March 2024 Economic Bulletin is available on the CBCS website at https://www.centralbank.cw/publications/economic-bulletins/2024
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