Economy set to contract by 9.1 per cent in 2018

PHILIPSBURG–St Maarten’s economy is projected to contract by 9.1 per cent in real terms come next year, the Central Bank of Curaçao and St. Maarten (CBCS) has cited in its Economic Developments in 2017 and Outlook for 2018 report released on Thursday.

The economic contraction is the result of a sharp decline in net foreign demand moderated by an increase in domestic demand. Net foreign demand will drop because of a decline in the export of goods and services combined with higher imports.
The dismal export performance reflects primarily lower foreign exchange earnings from tourism activities. By contrast, imports will rise related to construction material and services for the reconstruction of St. Maarten.
However, the imports by the wholesale and retail trade sector will drop due to lower tourism spending and a decline in private consumption. Domestic demand will go up driven mainly by increased investments by the private and public sectors. In addition, public consumption will rise because of more disbursements on goods and services.
The increase in domestic demand will be dampened by lower private consumption. The decline in private consumption is caused by increased unemployment, particularly in the tourism sector, and reduced wealth.
More purchases of construction material and durable goods by those who were covered by insurance will moderate the decline in private consumption. The inflationary pressures are projected to remain at 1.4 per cent in 2018.
Looking at 2017, CBCS reported that preliminary data suggests that real gross domestic product (GDP) contracted in the monetary union of Curaçao and St. Maarten in 2017 as activities dropped in both economies. Curaçao recorded a real economic contraction of 1.4 per cent in 2017, following a decline of one per cent in 2016.
St. Maarten’s real GDP is expected to contract by four per cent in 2017, a deepening of the 0.1 per cent contraction in 2016, primarily because of the severe damage Hurricane Irma inflicted on St. Maarten’s production capacity. Meanwhile, inflationary pressures rose to 1.4 per cent in 2017, largely influenced by a rise in electricity prices and healthcare premiums.
The economic contraction in 2017 is caused by a decline in net foreign demand because the drop in the export of goods and services surpassed the lower imports. Exports dropped mainly because of a decline in the foreign exchange earnings from tourism activities. Also, foreign exchange earnings from the sectors that cater to the tourism sector contracted.

Source: The Daily Herald https://www.thedailyherald.sx/islands/72260-economy-set-to-contract-by-9-1-per-cent-in-2018

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