The economy of Curaçao will recover partly in 2021, at the rate of 10.2% growth, after plummeting by an estimated 27.5% in 2020. Economic recovery in 2021 will break the chain of multiyear recessions that the island has been subject to since 2016, and will be the result of base effects and some resumption in tourism and related sectors. Once tourism activities normalises (which is expected in 2022), GDP growth will moderate to 7.4%.

Tourism came to a standstill during the health crisis and will be slow to recover, dragging output down as sentiment towards travel and tourism will remain pessimistic until the crisis passes or a vaccine is developed and rolled out. Although economic data for the second quarter is not yet available, the CBCS reported that, in the first quarter of 2020, real GDP dropped by 9.6% year on year, signalling a much more drastic downturn in the second and third quarters.

The first-quarter economic downturn was driven by a lack of new private construction projects; several important projects reached completion in 2019. In terms of gross value added, all sector contributed to negative performance of GDP. We expect the factors causing the first-quarter decline to have intensified upon the outbreak of the Covid-19 pandemic and to have affected overall output levels much more drastically.

The pandemic will also bear down on Curaçao's already poor manufacturing sector performance, which contracted by 17.1% (in nominal terms) in 2019, reflecting the Isla oil refinery's ongoing woes. The halt in economic activity will compound the problems faced by Isla during 2020. A request in July from the Rhuggenaath government to Klesch Group (based in Switzerland) to finalise the takeover was met with silence, and negotiations subsequently ended. As the search for a new operator continues, the creation of jobs for those left unemployed owing to the non-operation of the refinery will be delayed, weighing on the scope and pace of economic recovery.

Labour market conditions will be hit hard by the economic fallout from the pandemic. We expect real wages, which were already growing only marginally in 2018, to decline. We also anticipate that the unemployment rate, which stood at 17.4% in April 2019, will spike in 2020 amid lay-offs and furloughs owing to business closures during and after the pandemic. This will have a detrimental effect on private consumption demand. With the global tourism sector grinding to a halt, Curaçao's small and open economy will be hit hard by dampening external sector prospects, despite the reopening of its tourism sector. Given the poor outlook for a pick-up in domestic demand this year (notwithstanding fiscal measures) and a dire labour market situation, the economy's short-term growth prospects will remain negative. Some cushion will come from the recent agreement with the Netherlands, which aims to provide long-term investment package, to boost the investment climate in the country.