WILLEMSTAD - According to preliminary figures of the CBCS, Curacao’s real GDP contracted further by 1.9% in 2018, following a decline of 1.7% in 2017. Meanwhile, consumer price inflation rose to 2.4% in 2018, reflecting mainly an increase in international oil and food prices.
An analysis of the GDP by expenditure shows that the expected economic contraction in 2018 was caused by a decrease in both net foreign and domestic demand. The decline in net foreign demand was the result of a drop in exports combined with higher imports. In addition, domestic demand shrank as both private and public spending contracted. Private spending went down on the back of lower private consumption while private investment remained muted. Consumer spending dropped as a result of, among other things, a decline in disposable income because of the higher inflationary pressures and a worsened labor market. Furthermore, public spending dropped because of a decrease in both government investment and consumption. Public investment declined as the construction of the new hospital is reaching its final stages and because of fewer road infrastructure projects. The lower public consumption was caused by lower disbursements on goods & services and on wages & salaries.
A review of GDP by sector shows that the decline in private sector activities during the first half of 2018 was attributable mainly to the transport, storage, & communication, manufacturing, construction, financial intermediation, and wholesale & retail trade sectors, mitigated by an increase in the activities in the utilities and restaurants & hotels sectors.
Real value added contracted in the transport, storage & communication sector in the first half of 2018 as a result of a decline in both harbor and airport-related activities. The poor performance of the harbor was the result of a significant drop in the number of ships piloted into the port of Curaçao, notably freighters and tankers. The decline in the number of tankers was largely related to the headwinds the refinery was facing. Meanwhile, airport-related activities dropped due to lower total passenger traffic mitigated by an increase in the number of commercial landings. The increase in commercial landings was the result of additional flights by various air carriers, including KLM, TUI, American Airlines, Copa Airlines, Jet Blue, West Jet, and Fly Always.
Real output in the manufacturing sector shrank in the first six months of 2018, primarily because of lower refining activities at the Isla refinery. The decline in crude oil supply from Venezuela, the seizure of the PDVSA assets by the American oil company ConocoPhillips, and the limited steam deliveries by the CRU plant resulted in lower production activities at the refinery. The construction sector also posted negative results because several major construction projects were finished or in their final stages.
The negative contribution of the financial intermediation sector to real GDP during the first half of 2018 was the result of a drop in real value added of both the domestic and international financial services. The decline in domestic financial services reflected a drop in net interest income of the commercial banks, moderated by an increase in other fees & income. Meanwhile, lower wages & salaries and other operating expenses reflected the decline of international financial services.
Furthermore, the wholesale & retail trade sector recorded a contraction in the first six months of 2018 due to fewer activities in the free zone and less domestic demand, moderated by an increase in tourism spending.
By contrast, the restaurants & hotels and utility sectors contributed positively to GDP in the first half of 2018. Growth in the restaurants & hotels sector reflected an increase in the number of stay-over visitors, the number of visitor nights, the occupancy rate, and the number of cruise tourists. The number of stay-over visitors increased mainly because of more visitors from North America and Europe, specifically the United States, Canada, and the Netherlands. The South American and Caribbean markets declined largely because of the lack of airlift to regional destinations due to the cancellation of flights by InselAir and the continued crisis in Venezuela. The buoyant performance of cruise tourism was related to the opening of the second mega pier and a change in itineraries by cruise lines because of the devastation caused by hurricanes Irma and Maria in popular cruise destinations in the Caribbean. The hotel occupancy rate rose also but probably reflected the increase in the number of visitors combined with fewer available hotel rooms attributable to the closure or renovation of several hotels.
Finally, the gain in the utility sector was supported by more water and electricity production in the first six months of 2018 compared to the first six months of 2017.
