Central Bank: Economic Developments in 2017 and outlook for 2018
WILLEMSTAD - In her foreword on the latest report of the Central Bank of Curaçao and St. Maarten, Interim President Mrs. L. Matroos - Lasten said that the preliminary data suggest that real GDP contracted in the monetary union of Curaçao and Sint Maarten in 2017 as activities dropped in both economies. Curaçao recorded a real economic contraction of 1.4% in 2017, following a decline of 1.0% in 2016. Meanwhile, in the aftermath of Hurricane Irma, real GDP shrank in Sint Maarten by 4.0% in 2017 after a contraction of 0.1% in 2016. Furthermore, inflationary pressures increased in both countries.
The economic contraction in Curaçao was the result of a decline in net foreign demand, moderated by an increase in domestic demand. The negative contribution of net foreign demand was caused by a decline in exports combined with increased imports. Domestic demand rose because of higher private and public spending. The increase in private spending was supported by higher investments while private consumption dropped. The increased inflationary pressures and worsened labor market situation were the main causes of the lower consumer spending. Meanwhile, public spending increased as both government investment and consumption rose. A sectoral analysis reveals that real value added dropped in the wholesale & retail trade, restaurants & hotels, transport, storage & communication, and financial intermediation sectors. By contrast, real output expanded in the construction and utilities sectors.
Up till the second quarter of 2017, Sint Maarten’s economy was growing, supported by the manufacturing, construction, restaurants & hotels, transport, storage & communication, and real estate, renting & business activities sectors. However, in September 2017, Hurricane Irma caused severe damage to the country destroying homes, infrastructure and commercial and public property. Hence, Sint Maarten’s production capacity was severerly affected, causing a real GDP contraction for the entire year. On the expenditure side, Sint Maarten’s real GDP contraction was the result of a decline in net foreign demand due to a drop in exports, moderated by lower imports. By contrast, domestic demand increased on the account of increased public and private demand. The increase in private demand was the result of more investments, mitigated by a decline in consumption. Public demand grew supported by increased government consumption, while investments dropped.
On the fiscal front, the public finances of both Curaçao and Sint Maarten worsened during 2017. Despite measures to reduce the total expenditures and increase tax revenues through improved tax compliance, the government projects a deficit on its current budget for the year 2017. Meanwhile, following a surplus in 2016, the government of Sint Maarten is expected to record a budget deficit in 2017 caused primarily by a sharp decline in government revenues and higher expenditures in the aftermath of Hurricane Irma. However, the government of Sint Maarten will receive liquidity support from the Dutch government that will compensate part of the deficit.
The economic prospects of the monetary union for 2018 are uneven. Curaçao is projected to record a modest growth of 0.3%, driven by an increase in public and private demand. However, a decline in net foreign demand will dampen the economic expansion. Meanwhile, Sint Maarten’s economic contraction is projected to deepen further and reach 9.1% in 2018 as the increase in public and private demand will not be sufficient to compensate the sharp decline in net foreign demand. The latter decline is largely attributable to a drop in exports as it will take time for Sint Maarten’s production capacity to reach pre-hurricane levels.
Click on the link below to download the report.