Central Bank: Economy contracts by 0.6 per cent

PHILIPSBURG–St. Maarten recorded an economic contraction of 0.6 per cent in the second quarter of 2015, the Central Bank of Curaçao and St. Maarten announced on Thursday. The contraction was tagged to a decline in domestic demand, moderated by an increase in net foreign demand, Bank President Emsley Tromp said.

“The decline in domestic demand was caused by a drop in both private and public spending,” Tromp said. The Gross Domestic Product (GDP) contraction followed an expansion in the second quarter of 2014.

“St. Maarten is going through a political crisis creating uncertainties that hamper economic growth because major deficiencies are not being addressed adequately. Hence, the country is in urgent need of political stability so it can create a climate in which the macroeconomic environment can be strengthened to attain a higher sustainable growth path,” said Tromp.

Sectoral data indicate that output contracted in most sectors of the economy, with the exception of the utilities and financial intermediation sectors. The contraction in output was most pronounced in the restaurants and hotels sector due to a decline in stay-over tourism combined with fewer cruise visitors.

The drop in the wholesale and retail trade sector was caused by a decline in tourism spending and lower domestic demand.

The decline in airport-related activities, in line with the drop in stay-over tourism, caused the poor performance in the transport, storage and communication sector, said Tromp.

In contrast, real output expanded in the financial intermediation sector as a result of an increase in other fees and income of the domestic commercial banks, while higher electricity and water production supported the growth in the utilities sector.

“On the fiscal front, the deficit on the current budget of the government of Curaçao widened in the second quarter of 2015 compared to the second quarter of 2014,” Tromp explained, led by a rise in expenditures and a drop in revenues. The rise in expenditures was caused solely by increased social security transfers.

Meanwhile, Government revenues dropped slightly due to a decline in non-tax revenues.

Contrary to Curaçao, St. Maarten’s Government recorded a slightly lower budget deficit in the second quarter of 2015 compared to the second quarter of 2014, due to a drop in expenditures partially offset by a slight decline in revenues.

Tromp pointed out that the drop in expenditures was a result of lower outlays on wages and salaries and social security, while the decline in earnings was attributable to a drop in tax proceeds.

Tromp emphasised that strengthening economic growth while maintaining sound public finances is for both Curaçao and St. Maarten a major policy challenge.

Curaçao growth

Curaçao Government has embarked on a path of reducing the cost of the government apparatus and the social insurances while stimulating economic growth that contributed to a real GDP growth of 0.4 per cent during the second quarter of 2015, said Tromp in the Bank’s Quarterly Bulletin.

The economic growth of Curaçao in the second quarter of 2015 was supported by a rise in domestic demand, as both private and public spending increased. However, real GDP growth was dampened by a decline in net foreign demand, as exports dropped at a faster pace than imports,”

Tromp explained.

“The increase in private spending was solely due to higher consumption as investments dropped. Meanwhile, the increase in government investments – in among other things, the construction of the new hospital – caused public demand to increase,” he added.

It was primarily the manufacturing, wholesale and retail trade, and restaurants and hotels sectors that contributed to the expansion of Curaçao’s economy in the second quarter of 2015, Tromp said.

There was a “positive contribution” of the manufacturing sector to real GDP growth as reflected by increased refining and ship repair activities. The expansion in the wholesale and retail trade sector was driven by an increase in domestic demand and higher tourism spending, mitigated by a decline in activities at the free zone.

The restaurants and hotels sector continued to perform well as a result of a growth in stay-over tourism. By contrast, the number of cruise tourists dropped, despite an increase in the number of cruise calls, Tromp explained.

The growth in stay-over tourism was mitigated by a decline in the South American market, particularly Venezuela. “The favourable developments in the transport, storage and communication sector were the result of increased airport-related and harbour activities,” Tromp said.

Airport activities increased with the growth in stay-over tourism and total passenger traffic, while the harbour activities rose because of more ships, freight, and oil storage handled.

Curaçao recorded a drop in real value added in the financial intermediation, construction, and utilities sectors. Tromp explained that the financial intermediation sector dropped mainly because of the poor performance of the domestic banking sector, while the construction sector contracted because of a decline in private sector investments.

Source: The Daily Herald Central Bank: Economy contracts by 0.6 per cent