Political and economic outlook

• The administration of the prime minister, Eugene Rhuggenaath of the Partido Antiá Restruktur, will face a challenging time governing, given its slim majority of just one seat in the legislature.
• Progress on fiscal consolidation and tackling corruption will be gradual and subject to opposition. Tougher counter-narcotics action in Central America poses a risk to security as a result of diverted illegal drug flows through Curaçao.
• The Kingdom Council of the Netherlands will continue to provide fiscal supervision to Curaçao and help it to maintain a balanced budget. A public debt/GDP ratio of over 40% (standing at 50.3% as at end-2017) will continue to add an element of fiscal risk.
• The economy contracted by 1.7% in real terms in 2017, owing to a slowdown in growth of tourism revenue and domestic demand. Public spending cuts and weak demand will sustain a contraction of 0.6% in 2018. The economy will recover by only 1% 2019.
• Inflation will be slightly higher in 2018-19 than in recent years, owing to a pick-up in oil prices. Inflation will average 2.5% in 2018-19.
• The current-account deficit will narrow slightly as a share of GDP, but will remain large. Recovering tourism earnings will boost services receipts, while the trade deficit will narrow.

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Key changes since May 18th

• The Economist Intelligence Unit has revised the real GDP forecast for 2018 downward from a small recovery of 0.2% to a small contraction of 0.6% on account of small increases in tourist activity so far this year that will be offset by still-weak consumption.
• We expect a recovery in 2019, driven by an uptick in investment and consumption, with real GDP growth of 1% as opposed to our prior forecast for growth of 0.9%.

The quarter ahead

• TBC-Q1 2018 GDP data release: We expect first-quarter GDP growth to be slightly negative year on year, owing to flat tourist arrivals in January-March.
• TBC- New Isla refinery operator: Within the fourth quarter the government is likely to announce a new strategic partner who will take over lease and operation of the PDVSA the refinery (PDVSA is the Venezuelan state oil firm). This will be a crucial step in ensuring that production increases closer to capacity.