Curaçao's small, open economy will remain highly sensitive to shifts in commodity prices, and the ebb and flow of international tourism demand. We estimate that a six-year recession ended in 2015, with growth of 0.1% (official figures have not yet been released). We expect growth to accelerate modestly in the short term, driven by further improvements in services sector activity (particularly non-tourism such as finance). This will drive new investment in services and construction growth in the medium term. However, a sharp recession in neighbouring Venezuela, along with the impact of the Zika epidemic on tourism, adds further headwinds. Overall, real GDP growth is forecast to remain positive, although weak in 2016 and 2017, at 0.4% and 0.5% respectively.

A stronger recovery will be prevented by the government's need to maintain strict fiscal discipline during the forecast period, which will continue to stifle the ability of the public sector to provide a lift to economic growth. Tax increases and minimal real wage growth will also constrain private consumption demand. Growth will be further hampered by tougher international financial regulation, which is acting as a brake on offshore services and company formation. Furthermore, despite recent overtures from Chinese investors, the future of Curaçao's Isla oil refinery-leased to Venezuela's embattled PDVSA-remains in question, following an announcement in February that the lease would not be renewed in 2019. Other risks to our forecast for a mild recovery would materialise if real GDP growth in the US (estimated to average 2.4% in 2016-17) were to falter or if weakness in the euro zone were to mount.

The government has pledged to pay more attention to addressing the concerns of business, in order to improve the investment climate and cut red tape. However, until clear progress is made, investor confidence and levels of private invest-ment will remain subdued. Some initial steps to stimulate private investment have made headway in recent years. A framework agreement between the private sector and the government provides for closer consultation on policy initiatives. The participation of all the governing parties in the signing of the agreement will better align the reform agenda with business goals and will improve the chances of the deal's approval by the legislature. Progress in politically sensitive areas, such as tackling rigid labour laws, is, nevertheless, likely to remain slow and piecemeal. The drafting and approval of anti-trust legislation (in the form of a competition act) is expected to conclude by end-2015. Several industries in Curaçao operate as virtual monopolies, with some companies suspected of abusing their dominant positions, particularly in the telecommunications, utilities, construction and pharmaceuticals sectors. The creation of a com-petition watchdog to oversee the opening of some sectors to new investors has the potential to improve efficiency and lower costs across the economy. However, implementation will be slow, and will be hampered by resistance to reforms from established interests that have the capacity to wield considerable political influence.