Global risks to outlook remain; Economic recovery gathers pace across monetary union

June 28, 2023  –WILLEMSTAD, PHILIPSBURG – “The economic recovery gathered pace across the monetary union in 2022 with real GDP expanding by 7.9% in Curaçao and 9.8% in Sint Maarten,” stated President of the Centrale Bank van Curaçao en Sint Maarten (CBCS), Richard Doornbosch, in CBCS’s Economic Bulletin June 2023. “In both countries, growth was driven primarily by an increase in net foreign demand, along with a positive contribution from domestic demand. Net foreign demand rose in real terms sustained by a sharp increase in exports as reflected by a robust growth in foreign exchange earnings from stay-over tourism, moderated by a higher import bill,” he explained.

“Domestic demand rose in both countries on the account of higher private spending while public spending shrank. The gain in private spending was driven solely by investments, as consumption was affected by a decline in purchasing power due to higher inflation.”  

When looked at from the production side, the restaurants & hotels, transport, storage & communication, real estate, renting & business activities, wholesale & retail trade, and construction sectors were the main drivers of the economic growth seen in both countries in 2022.  

Meanwhile, inflation accelerated in both Curaçao and Sint Maarten on the back of soaring international commodity prices. To limit the rise in domestic prices, the governments of both countries temporarily reduced taxes on gasoline and gasoil halfway through the year. “Nevertheless, inflation rose significantly in Curaçao reaching 7.4% in 2022. In Sint Maarten, by contrast, inflationary pressures remained relatively contained with average consumer prices increasing by 3.8%,” Doornbosch pointed out.  

“Real GDP growth is expected to slow in Curaçao to 3.4% in 2023. Compared with the March 2023 outlook, the forecast has been revised up by 0.2 percentage point due to a stronger increase in domestic demand on the back of lower expected inflation. Inflation in Curaçao is set to drop to 4.0% in 2023, a downward revision of 0.6 percentage point compared to the previous outlook. The revision reflects primarily a sharper projected decline in international oil prices,” Doornbosch said. 

Turning to Sint Maarten, the CBCS president outlined that, real GDP growth will ease to 3.2% in 2023. The 2023 growth forecast entails an upward adjustment of 0.9 percentage point from the previous outlook due to a stronger than initially projected increase in public demand. Even though Sint Maarten’s real GDP already reached the pre-pandemic level in 2022, it is not expected to reach the pre-Hurricane Irma level before 2024. Meanwhile, inflation will remain practically unchanged at 3.7% in 2023, assuming a delayed passthrough of the increase in international commodity prices in Sint Maarten’s domestic prices.  

Doornbosch cautioned, however, that the outlook is subject to significant risks which are skewed downward. “The principal external risks include financial market distress caused by further monetary policy tightening that could result in a global recession,” he said, “Furthermore, higher international interest rates could trigger an outflow of reserves due to increased net portfolio investments abroad. Similarly, heightened geopolitical tensions, notably the war in Ukraine, could impact supply chains and increase commodity prices leading to higher inflation across the monetary union. In addition, extreme weather conditions due to climate change remain an everpresent risk to the outlook.”  

Domestically, risks to the outlook include failing to pass through the decline in international oil prices in domestic fuel prices that would result in additional inflationary pressures and an appreciation of the real exchange rate making the countries less competitive. “Other factors that could affect the medium-term growth path of Curaçao and Sint Maarten are the outcomes of the Mutual Assessment by the CFATF, finding a resolution for insurance company ENNIA, the conditions for refinancing the liquidity support received amid the pandemic, and delays in the execution of major construction projects, especially in Sint Maarten. Meanwhile, the successful implementation of the reforms as agreed upon in the mutual agreement recently signed with the Netherlands could result in a higher growth path,” Doornbosch concluded. 

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