Update Country Report Curaçao 13 Nov 2017

Event

In late October the Centrale Bank van Curaçao en Sint Maarten (CBCS, the two territories' joint central bank) released its quarterly report on Curaçao's economic performance, noting that the island's economy contracted in the first quarter of the year.

Analysis

The CBCS reported that the economy shrank by 0.9% in the first quarter of 2017 compared with the same period in 2016. Simultaneously, inflation picked up, rising from 0% in the first quarter of 2016 to 1.7% in the first quarter of 2017, driven by rising fuel and electricity prices. Although still a relatively low rate of inflation, this will further dampen economic growth by weighing on consumer purchasing power.

The economic decline was driven by a fall in private-sector activities, with the hotel and restaurants sector recording negative growth. The CBCS pointed to a fall in stopover tourists as a result of lower arrivals from South America, particularly nearby Venezuela, where an ongoing political and economic crisis has dampened outbound tourism to Curaçao. In addition, the cancellation of intra-regional flights by the country's struggling carrier, InselAir, also led to falling arrivals. The decline in tourist arrivals also had a knock-on effect on the transport, storage and communications sector, with airport-related activities falling as a result of InselAir flight cancellations. Increased output at the Isla oil refinery led to positive growth in the manufacturing sector, partially compensating for the decline in the tourism sector.

The CBCS report indicates that Curaçao's economy is likely to have continued to struggle in the second and third quarters. The Curaçao Tourist Board reported in October that Venezuelan tourist arrivals to Curaçao fell by 47% annually in September, declining to 2,403 arrivals. Overall tourist arrivals fell by 6%. As such, the tourism sector decline is likely to continue to weigh on overall economic activity, which does not bode well for growth in the remainder of 2017.

Impact on the forecast

We are likely to revise our 2017 growth estimate based on these results, from modestly positive GDP growth of 0.2% to a slight contraction.