Central Bank: Economic Outlook 2021

WILLEMSTAD - According to the Central Bank of Curaçao and St. Maarten (CBCS), in 2021, a positive economic turnaround of 6.5% is projected for Curaçao. This is a slight downward revision of 0.1 percentage point compared to the outlook presented in the Annual Report 2019. The projected economic growth in 2021 is caused by an increase in net foreign demand mitigated by a decrease in domestic demand. Nevertheless, the level of GDP still will be lower than the pre-COVID level.

Meanwhile, inflation is expected to surge to 3.7% in 2021, primarily because of the introduction of a general consumption tax (Algemene Bestedingsbelasting or ABB).

The 2021 outlook is based on the following assumptions:

– The government will introduce the ABB and eliminate the deduction of sales tax paid on imports in the first quarter of 2021.

– Tourism will pick up in 2021 but will remain below pre-COVID levels.

– The refinery will resume activities gradually and start with investments in 2021.

Net foreign demand will contribute positively to GDP as the increase in exports will surpass the gain in imports. Apart from the expansion in tourism earnings, increases are expected in the foreign exchange revenues from refining, bunkering, ship repair, and transportation activities. In line with higher tourism demand and private investment activities, merchandise imports will increase in 2021. In addition, the oil import bill will rise due to increased bunkering activities following the reopening of the refinery.

In contrast, domestic demand will decrease in 2021, although at a slower pace than in 2020, as the continuation of private investment projects delayed in 2020 will mitigate the decline in private consumption and public demand. In particular, investments in the construction and tourism sectors are expected to increase. However, private consumption is expected to decline as the higher inflation and deteriorated labor market will affect consumers’ purchasing power. Government spending will decrease, as the decline in consumption will surpass the slight increase in projected investments. Public consumption will decline reflecting, among other things, austerity measures to reduce the wage bill and the outlays on goods & services.