WILLEMSTAD - According to the Central Bank of Curaçao and St. Maarten (CBCS), net foreign demand will contribute positively to the GDP, as the expected increase in exports will outpace the increase in imports. “In addition to the expected growth in foreign exchange income from tourism in 2021, income from ship repair will also increase. In line with the increase in tourist spending and private investment, goods imports are increasing.
By contrast, domestic demand is declining, albeit at a slower pace than in 2020, due to a decline in private consumption and government spending, moderated by the continuation of private investment projects that were delayed in 2020. "Especially investments in the construction and tourism sectors are expected to increase," the CBCS expects.
Private consumption is expected to decline as "purchasing power will decline" due, firstly, to higher inflation and, secondly, the further deterioration of the labor market situation.
Government spending is declining as the fall in consumption will outpace the slight growth in investment. Government consumption will decline due to, among other things, austerity measures to reduce personnel costs and expenditure on goods & services.
But, as the CBCS analysis makes above all clear: “The Covid-19 pandemic remains the main risk to the economic projection for 2021. If a vaccine becomes available quickly, the global economy could grow faster, which could also cause Curaçao's economy to be stronger. In addition, this could reduce travel anxiety, which will benefit Curaçao's exports and real GDP growth.”
The recent second wave of the pandemic, combined with a possible escalation of the government's preventive measures and the recently issued code orange travel advice for Curaçao by the Dutch government, could worsen the outlook.
The implementation of the country package, which the government of Curaçao recently agreed with the Netherlands as a condition for the continuation of liquidity support, poses another risk for the projection of 2021 in the expert opinion of the CBCS.
"The Country Package contains measures that could stimulate growth in 2021 and beyond, including labor and capital market reform, the reduction of bureaucracy and administrative procedures and investment promotion."
In addition, the Rhuggenaath government is considering introducing flanking measures in the indirect tax sphere to mitigate the decline in purchasing power resulting from the introduction of the added value tax (ABB). “These measures could mitigate the expected decline in private consumption. This does depend on the type of measures that are introduced and the timing of their introduction,” according to the CBCS regarding the outlook for 2021.