Political and economic outlook

• The coalition government led by the prime minister, Eugene Rhuggenaath of the Partido Antiá Restruktur, will face challenges governing, with a slim majority in the legislature and a prolonged crisis in Venezuela that threatens to engender political instability.
• 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 high level of public debt to GDP of around 50% will continue to add an element of fiscal risk.
• After contractions in GDP in 2017 and 2018, The Economist Intelligence Unit forecasts a gradual expansion in 2019-20 (averaging 0.3% per year), driven by rising tourism. Weak manufacturing and ongoing fiscal constraint will prevent a stronger recovery.
• Inflation will dip slightly lower in 2019-20 than in 2018, owing to softer oil prices (in 2019 and 2020) but higher food prices (in 2020) will keep consumer prices from falling below 2%. Inflation will average 2.3% during the forecast period.
• The current-account deficit will narrow gradually as a share of GDP, but will remain large, at over 13% in 2020. Recovering tourism earnings will boost the services surplus, while the trade deficit will narrow as demand for construction material falls.

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Key changes since March 18th

• The government received an exemption from US sanctions on the Venezuelan state oil company, PDVSA, which operates an oil refinery on the island. This waiver will not boost economic growth, but it prevents the scenario of a further major economic decline.
• Relief from US sanctions follows a visit by US congressional representatives, the first such visit since 1997. As relations with Venezuela deteriorate we expect economic and diplomatic ties with the US to grow.

The quarter ahead

• TBC-New Isla refinery operator: The government continues to seek a new strategic partner to take over the lease and operation of the refinery that is currently leased by PDVSA. A new operator will support revenue growth and overall economic growth prospects, as PDVSA's waning production has weighed on the refinery's operations.
• TBC-Data releases for 2018: We expect official data for 2018 to be released in the next quarter. We currently estimate that the economy contracted by 2% in 2018, but this figure, as well as our forecast, would be subject to change in the event of a different end-year result.