Following the release of discouraging data for January-September 2017, we now estimate an economic contraction of 1.5% in 2017 (as opposed to our prior estimate of a real GDP decline of 0.3%), owing to a larger than anticipated decline in both private and public demand, which increases in exports and private investment were unable to offset. Declining tourism earnings and deteriorating terms of trade are set to persist into 2018. This will moderate the recovery in GDP growth, which we forecast at just 0.3% in 2018, before a pick-up to a still-weak 0.9% in 2019. Public spending on reconstruction following a destructive hurricane season in September 2017 will be supported by aid from the Dutch government and the EU. At the end of March the government is likely to receive US$17m in EU funds for reconstruction projects, which will support investment growth following the completion of the construction of a large pier in 2017 and a hospital by the end of 2018.

Curaçao's small, open economy will remain highly sensitive to shifts in commodity prices, and the ebb and flow of international tourism demand. Rising unemployment also highlights the still-weak state of the economy. We expect growth to accelerate modestly in the short term, driven by further improvements in services sector activity (particularly in non-tourism areas, such as finance). This will drive new investment in services and construction growth in the medium term. A sharp recession in Venezuela caused overall stopover tourist arrivals to decline by 11% year on year in January-November 2017; we expect a recovery in 2018-19 as arrivals from other countries increase. The government recently came to an agreement with Airbnb, a US-based online short-term property rental marketplace, to promote its visibility abroad, and was involved in a financial bailout of the local airline, Insel, highlighting the strategic importance attached to the tourism industry.

A stronger recovery will be prevented by the government's need to tighten fiscal policy during the forecast period. Minimal growth in real wages will 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, the future of Curaçao's Isla oil refinery-leased to Venezuela's embattled PDVSA-remains in question, following the collapse in December 2017 of a deal with a Chinese firm, Guangdong Zhenrong Energy, which had been awarded a US$5.5bn contract to upgrade the refinery. As at February 2018, half of the refinery's boilers are not working and the entire refinery is at high risk of becoming inoperable in 2018. Although our baseline scenario envisages a solution to the refinery's operational problems, manufacturing output will suffer greatly if a solution is not found, hurting the economy's diversification and overall growth. Other risks to our forecast for a mild recovery would materialise if GDP growth in the US or the euro zone were to fall below our current projections.