~ Public sector contribution negative ~
PHILIPSBURG--St. Maarten's economy expanded in real terms by 0.9 per cent in 2013, Central Bank of Curaçao and St. Maarten President Dr. Emsley Tromp said during a presentation of the institution's 2013 Annual Report on Tuesday.
The real gross domestic product (GDP) growth was driven solely by the private sector. The contribution of the public sector was negative.
While St. Maarten recorded a small expansion, the real GDP in Curaçao contracted by 0.8 per cent. Tromp said the economic performance in the monetary union of Curaçao and St. Maarten had been "mixed" in 2013.
He said in St Maarten inflation had moderated from 4.0 per cent in 2012 to 2.5 per cent in 2013 because of a slowdown in food price gains and lower electricity prices, while consumer price inflation in Curaçao dropped to 1.3 per cent in 2013 from 3.2 per cent in 2012 reflecting mainly lower fuel prices.
According to Tromp, private sector growth was supported primarily by the wholesale and retail trade and construction sectors. The positive development in the wholesale and retail trade sector was the result of increased domestic demand and more tourism spending, he said. Real value added rose in the construction sector due to more public and private sector investments.
Growth weakened in the restaurants and hotels sector in 2013 as the expansion in both stay-over and cruise tourism was less pronounced than in 2012. The expansion in stay-over tourism was driven by increases in the number of visitors from South America, North America and the Caribbean. However, the North American and Caribbean market segments rose at a slower pace than in 2012.
The European market segment contracted, due mainly to fewer visitors from the Netherlands and France, said Tromp. The development in cruise tourism matches the increase in the number of cruise vessels visiting the port of Philipsburg during 2013.
Following a contraction in 2012, activities in the manufacturing sector rose in 2013 because of increased repair activities on yachts that visited St. Maarten. The utilities sector also contributed positively to growth, as reflected by increases in the production and consumption of water and electricity.
Poor performance of the transport, storage and communication and financial intermediation sectors dampened St Maarten's real GDP growth in 2013. Real output dropped in the financial intermediation sector, as indicated by a decline in net interest income of the domestic banks.
Meanwhile, real value added in the transport, storage and communication sector shrank due to a decline in harbour activities mitigated by more air transportation and airport-related activities. The poor performance by the harbour was the result of a drop in the number of ships that visited St Maarten.
The economic contraction in Curaçao was attributable entirely to domestic spending. By contrast, net foreign demand increased. The private sector in particular accounted for the decline in domestic spending. Both private consumption and investment fell.
The drop in private consumption was related to the measures taken by the government, including the increase in social premiums that affected disposable income, the worsening labour market conditions and the decline in consumer credit.
The contraction in government was entirely of a consumptive nature, as investments grew. The growth in public investment was driven mainly by the improvement of Curaçao's road infrastructure. The increase in net foreign demand was the result of imports dropping at a faster rate than exports.
Tromp said both Curaçao and St Maarten needed to address the rigidities in the labour market and reduce the cost of doing business. Because of the implementation of the debt relief programme, among other things, the money market of the monetary union has been characterised by high liquidity for some years.
"Therefore, the weak development in private investments in both countries is not due to a lack of capital, but to a lack of investor confidence affected by political instability, policy inconsistencies, and uncertainties in both Curaçao and St Maarten," he said. "Both governments need to focus on restoring investor confidence to achieve gains in private sector investments and, hence, a higher and sustainable growth path.
"The lacklustre growth performance of the islands during the last few years is not sufficient to bring the high unemployment to a socially acceptable level and to create the necessary fiscal room to address other social needs. To bring us to a higher growth path, a reform agenda has to be adopted and implemented, including educational, labour market and business climate reforms.
"This means that rather than being distracted by issues that run counter to these objectives, policymakers should direct their attention at promoting growth through appropriately designed growth policies," he said.
Growth cannot be achieved it the current monopolistic structure in key sectors of the economy are not addressed.
Also at the presentation were Central Bank of Curaçao and St. Maarten staffers Linda Hassell and Dwayne President of the St. Maarten office, and Ersilia de Lannooy, Shelwyn Salesia, Alberio Romero, Gregory Damoen, Eric Matto and Nancy van der Wal of the head office in Curaçao.