Political and economic outlook

• Curaçao is a tiny, open island economy and a constituent country of the Kingdom of the Netherlands that is heavily dependent on tourism. The Netherlands is the main source of tourists to the country and an important trade partner.
• EIU expects the government of the prime minister, Gilmar Pisas, to encounter few challenges to governability, as the centre-right ruling party has a legislative majority. However, austerity measures adopted by the government to satisfy conditions of Dutch financing could cause social unrest, posing risks to political stability.
• In 2022 we expect the government to make progress on implementing recently introduced fiscal reforms. The Kingdom Council of the Netherlands will continue to provide fiscal supervision, but disagreements with the government over certain financing conditions could disrupt the flow of disbursements, aggravating fiscal pressures.
• Real GDP growth will accelerate to 12.3% in 2022-after a partial recovery estimated at 4.8% in 2021-aided by continued Dutch liquidity support and a significant improvement in global tourism sentiment (owing to greater vaccine coverage). This forecast assumes that no new particularly severe variant of covid-19 emerges.
• The current-account deficit will narrow slightly over the 2022-23 forecast period, driven by a partial recovery in tourism inflows. However, the deficit will remain large, as a recovery in domestic demand and a surge in oil prices will push the import bill up.
• Reforms to the currency union between Curaçao and Sint Maarten and the splitting of their shared central bank will be long-term goals, but little will happen in the short term owing to more immediate concerns, such as economic recovery from the pandemic.
• Curaçao's high vaccination rate compared with larger Caribbean islands will make it more attractive to tourists during the northern hemisphere summer season.

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Key changes since December 3rd

• Real GDP grew by 23.6% year on year in April-June 2021-markedly less than expected-despite a low base. We have therefore revised our GDP growth estimate for 2021, to 4.8% (from 6.5%), and our forecast for 2022 (to 12.3%, from 11.5%), owing to improved base effects.
• Stronger than expected fourth-quarter inflation data for 2021 and the global supply-chain disruptions caused by the ongoing Russia-Ukraine conflict have led us to revise up our inflation forecast for end-2022, to 4.5% (from 4.2% previously).

The quarter ahead

• TBC-GDP (Q3 2021): The Centrale Bank van Curaçao en Sint Maarten (the Curaçao and Sint Maarten joint central bank) reported that real GDP grew by just 23.6% year on year in the second quarter of 2021, despite a low base of comparison. We estimate that real GDP expanded more strongly in the third quarter, as tourism is likely to have picked up.