WILLEMSTAD/PHILIPSBURG--The real gross domestic product (GDP) of Curaçao contracted by 0.2 per cent while St. Maarten recorded an expansion of 1.6 per cent in the first quarter of 2015, said Central Bank of Curaçao and St. Maarten President Dr. Emsley Tromp in the Bank’s Quarterly Bulletin issued on Thursday.
“Developments diverged in the monetary union of Curaçao and St. Maarten during the first quarter of 2015,” he said.
Both countries have benefitted from the significant drop in international oil prices, leading to lower inflationary pressures, he explained. In Curaçao, the inflation rate dropped from 0.8 per cent in the first quarter of 2014 to 0.1 per cent in the first quarter of 2015. Meanwhile, in St. Maarten, the quarterly inflation eased to 1.2 per cent, down from 2.1 per cent a year earlier.
“The economic contraction in Curaçao stemmed from a decline in private demand. Both private consumption and investment dropped during the March quarter of 2015. By contrast, public spending and net foreign demand contributed positively to GDP,” Tromp said. “The increase in public spending was driven by a rise in public investment due largely to the construction of a new hospital in Curaçao. Meanwhile, net foreign demand increased, as export growth surpassed the rise in imports.”
The financial intermediation, construction, and transport, storage and communication sectors were primarily responsible for the contraction in Curaçao’s private sector activities, Tromp explained.
The poor performance of the construction sector was partially offset by the construction of the new hospital. Harbour activities fell, with fewer container movements and a drop in oil storage activities. However, Tromp explained that airport-related activities were up because of increases in total passenger traffic and commercial landings.
The restaurants and hotels, manufacturing, and wholesale and retail trade sectors in Curaçao grew in the January to March period of 2015, Tromp said.
“Following a decline in the first quarter of 2014, real value added in the restaurants and hotels sector rose in the first quarter of 2015, driven by a robust growth in stay-over tourism. However, the number of cruise tourists dropped despite an increase in the number of cruise calls.” Tromp emphasised the importance of increased airlift for the further development of stay-over tourism in Curaçao.
“Although at a slower pace compared to 2014, real output expansion in the manufacturing sector stemmed from a positive contribution of the Isla refinery. The refinery’s contribution was primarily the result of increased refining activities. However, output growth in the manufacturing sector was offset partly by a drop in ship repair activities,” Tromp said.
“The expansion in the wholesale and retail trade sector was attributable to the increase in tourism spending, mitigated by the contraction in private demand and lower activities at the free zone because of the unstable conditions and currency restrictions in Venezuela.”
According to the Bank’s estimates, real GDP growth in St. Maarten was driven by increases in both domestic and net foreign demand. The increase in domestic demand was led primarily by private spending, as both private investments and consumption rose.
“Furthermore, public spending increased on the back of higher investments, notably in public infrastructure and the remodelling of public schools. In contrast, public consumption dropped, due mainly to lower outlays on goods and services. Net foreign demand contributed positively to St. Maarten’s real GDP expansion, as export growth was accompanied by a lower import bill,” said Tromp.
St. Maarten’s restaurants and hotels and wholesale and retail sectors were the main contributors to real GDP growth during the January to March period of 2015, Tromp pointed out in the report, due mostly to an estimated increase in tourism.
Growth in the wholesale and retail trade sector was supported by both increased domestic demand and more tourism spending. Following a contraction in the first quarter of 2014, the construction sector posted positive results owing to increased private and public investments, he said.
The transport, storage and communication sector also grew, although at a slower pace than in 2014. Airport-related activities rose in line with the growth in stay-over tourism. Activities in the Philipsburg harbour increased, with a higher number of ships piloted into the port and more container movements.
The utilities sector also contributed positively to real GDP growth as both water and electricity production were up. However, the financial intermediation and manufacturing sectors put a drag on St. Maarten’s first quarter growth in 2015, Tromp noted, with a drop in the net interest income of the commercial banks and lower yacht repair activities, respectively.
As for the monetary union, Tromp said that according to preliminary data and estimates of the Bank, the current account deficit of the balance of payments had narrowed during the first quarter of 2015 compared to the first quarter of 2014. This outcome was the result of an increase in net exports of goods and services, as exports rose while imports dropped.
“Gross official reserves rose significantly during the first quarter of 2015 due mainly to the issuance of debt securities by the Curaçao government that were allotted 100 per cent to the Dutch State Treasury Agency (DSTA) and the transfer of dividend tax by the Dutch authorities related to the BRK,” he said.
“The tightening of monetary policy was helpful during the past few years in reducing credit growth, bringing some improvement in the deficit on the current account of the balance of payments and strengthening reserves,” Tromp said of the Bank’s monetary policy. “The Bank will conduct a monetary policy that is sufficiently accommodative to facilitate private credit extension, particularly for private investments which are the drivers of sustainable economic growth.
“Nevertheless, private investments will only pick up if investor confidence is restored. The governments of Curaçao and St. Maarten can contribute to restoring investor confidence through policy consistency and transparency. At the same time, the financial sector, in particular institutional investors, need to take a more proactive role and provide the necessary funds for local private sector investments.”
