WILLEMSTAD/PHILIPSBURG–According to the Central Bank of Curaçao and St. Maarten (CBCS), preliminary data suggest that real gross domestic product (GDP) contracted in 2018 as economic activity dropped in both economies. However, the economic prospects for the monetary union in 2019 are brighter.
In Curaçao, real GDP is projected to grow by 0.4 per cent sustained by increased domestic and net foreign demand. For St. Maarten, a real expansion of 2.3 per cent is forecast, 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 St. Maarten.
Following a contraction of 1.7 per cent in 2017, real GDP fell further by 1.9 per cent in Curaçao in 2018. Meanwhile, St. Maarten recorded a deep economic contraction of 8.1 per cent after a decline by 4.8 per cent in 2017. In addition, inflationary pressures rose in both Curaçao and St. 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 and 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 and communication, manufacturing, construction, financial intermediation, and wholesale and retail trade sectors.
St. Maarten’s real GDP contraction during 2018 was caused by a decline in net foreign demand as exports of goods and 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 St. Maarten because of the severe shock caused by Hurricane Irma.
On the fiscal front, challenges remained for both Curaçao and St. Maarten during 2018. The government of Curaçao continued with its efforts to realise a balanced budget and comply with the fiscal rules as stipulated by the Kingdom Law of Financial Supervision of Curaçao and St. Maarten.
According to the latest projections, the government of Curaçao will register a surplus on its current budget, following a deficit in 2017.
Meanwhile, St. 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.
Source: The Daily Herald https://www.thedailyherald.sx/islands/84054-cbcs-both-economies-contracted-this-year
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