WILLEMSTAD - Curaçao’s GDP declined by an estimated 2¾ percent in 2018, bringing the cumulative contraction in the past 3 years to 5½ percent. Declines in refining, oil transshipment, and related services were the main contributors: the refinery effectively shut down production during the first half of 2018 while keeping employees and continuing to pay wages from small-scale batches of production with the remaining stock of oil. 

Disruptions in the oil sector have spread to supporting sectors, reducing employment and fiscal revenue.

The switch to more expensive fuel suppliers in the second half of 2018 and the bankruptcy of the local airline—related to its inability to collect payments from Venezuela—contributed to the external current account deficit to nearly 29 percent of GDP and pushed up inflation.

Historically strong trade linkages with Venezuela dropped sharply.

The economic outlook is challenging, despite rapid growth in the tourism sector. GDP is expected to contract by about 2 percent this year with a large negative contribution from the refinery (estimated at 3-3½ percentage points of GDP) and supporting activities, which would be only partially offset by a positive contribution from tourism: stayover arrivals are likely to show double-digit growth in 2019.

Ongoing and planned hotel construction is expected to increase room capacity from 7,500 in 2018 to almost 10,000 in 2022. Tourism from Venezuela has been largely replaced by more tourism from Europe, the U.S., and Latin American countries. The outlook is subject to significant downside risks—a permanent shutdown of the refinery would deepen the recession considerably and exert significant pressure on public finances via higher social spending.  While finding a new operator for the refinery would improve the outlook, it may prove difficult.

The inflow of undocumented Venezuelan immigrants is generating additional pressure on public finances.