WILLEMSTAD - Following an accelerated expansion in both 2017 and 2018, global growth is projected to continue at a somewhat weaker pace of 3.7% in 2019 because the expansion has become less balanced and may have peaked in some major economies. The momentum is still strong but the recently announced trade measures have lowered economic prospects. Nevertheless, risks to the medium-term global economic outlook are skewed to the downside as reflected by, among other things, policy uncertainties, rising trade barriers, tightening financial conditions, and noneconomic factors such as geopolitical tensions. Both the United States and the Netherlands, two of the main trading partners of Curaçao, are projected to grow at a slower pace in 2019. Curacao’s third important trading partner Venezuela is suffering from an economic crisis since 2014 which is expected to continue in 2019 and beyond.
The economy of Curacao is projected to grow by 0.4% in 2019, as both domestic and net foreign demand are projected to contribute positively to GDP. The growth in domestic demand will be supported by increases in both private and public spending. Private spending will be driven by private investment growth while private consumption will drop. The growth in private investment is supported primarily by investments in the tourism sector such as the renovation and expansion of the Marriott Hotel, and the Majestic and Corendon projects. Furthermore, investments in the utilities and wholesale & retail trade sectors will contribute to the rise in private investments. Private consumption will decline, albeit at a slower pace than in 2018, as a result of lower disposable income due to inflationary pressures. Also, the vulnerable labor market situation as reflected by layoff petitions of several companies will affect private consumption. In addition, net foreign demand is projected to contribute positively to real output growth because of higher exports combined with lower imports. Exports will increase primarily due to higher foreign exchange earnings from tourism, air transportation, and ship repair activities, mitigated by lower earnings from refining and bunkering activities. The gain in foreign exchange earnings from tourism activities will be supported by growth in both stayover tourism, notably from the United States and Europe, and cruise tourism. In addition, ship repair activities will rise as the investment in the floating docks increased the repair capacity. Despite higher private investments, imports will decline due to less construction material and services imported as the construction of the hospital is reaching its final stages. Also, the oil import bill will drop due to lower international oil prices.
Meanwhile, inflationary pressures are expected to reach 2.2% in 2019 due to a projected drop in international oil prices, mitigated by an increase in international food prices.
Downside risks to outlook 2019
There are a couple of risks that can affect the growth prospects of Curaçao in 2019. One of the main downside risks is the exposure to Venezuela, one of Curaçao’s main trading partners. The crisis in Venezuela may further affect the activities in key economic sectors of the Curaçao economy such as the refinery, the tourism, harbor, and financial services sectors. Furthermore, the continuing crisis can aggravate the inflow of refugees that Curaçao cannot handle on its own.
Another downside risk to the projection is the uncertain future of the refinery. Finding a strategic partner is key for the future of the refinery, as it is a vital contributor to the economy in terms of value added and employment. Further delays in the process of finding such a partner can affect private consumption and investment. Consumption may be affected because financial institutions may become reluctant to provide loans and credits to workers of the refinery and related companies.
Furthermore, the loss of correspondent banking relations can put a drag on economic growth in 2019 as it affects cross-border transactions and, thereby, increases macroeconomic uncertainties.
Another risk to the outlook is delays in the execution of private investment projects due to lengthy administrative procedures and bureaucracy. Finally, the pace of implementation of structural measures, including labor and capital markets reforms and reducing administrative barriers, may hinder the resumption of growth.