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St. Maarten economy rebounds in 2012 after weak 2011 performance

FRIDAY, 26 JULY 2013

PHILIPSBURG–Contrary to the global economic trend St. Maarten’s economy rebounded from its weak performance in 2011, registering a real Gross Domestic Product (GDP) expansion of 1.5 per cent in 2012. Consumer price inflation eased to 4.0 per cent in 2012, against 4.6 per cent in 2011, caused mainly by a deceleration of international oil prices.

That was the crux of the 2012 Annual Report of the Central Bank of Curaçao and St. Maarten presented Thursday, by Central Bank President Emsley Tromp at a press conference in the St. Maarten Branch of the Central Bank.

The economy stood at some NAf. 1.56 billion in 2012. The debt was at NAf. 353 million, a decrease of NAf. 1 million from 2011; that decrease also reduced the interest expense by one million guilder to NAf. 11 million.

The year 2012 marked the fourth year since the onset of the global financial crisis. The pace of recovery from this crisis has been slow and is characterised by financial sector stress, high public debt burdens and fiscal austerity measures. In 2012, world economic growth decelerated to 3.2 per cent, reflecting weakened economic activities in the advanced, emerging and developing countries.

In Curaçao, real GDP contracted by 0.1 per cent in 2012, following an expansion of 0.6 per cent in 2011. The economic contraction was accompanied by a heightened inflation rate of 3.2 per cent up from 2.3 per cent a year earlier. The increased inflationary pressures were primarily the result of the raise of the sales tax rate from five per cent to six per cent in 2012.

In St. Maarten, 2012 real GDP expansion stemmed primarily from a growth in the restaurants, hotels, transportation, storage and communication sectors. The restaurants and hotels sector performed well during 2012, as a result of an increase in stay-over and cruise tourism. The increase in cruise tourism was the result of more cruise calls.

However, cruise tourism increased at a slower pace than in 2011. Meanwhile, stay-over tourism grew thanks to a rise in the number of visitors from North America, which is traditionally the main tourism market.

Real value added in the transport, storage and communication sector rose due to increased activities in both the air and sea transport. Thanks to the growth in the number of stay-over arrivals, the number of passengers handled at the airport rose, contributing to the positive development in airport-related activities. Meanwhile, the harbour performed well because of an increase in the number of ships piloted into the port and a rise in cargo movements.

The wholesale and retail trade sector recorded a growth, due to the positive developments in the tourism industry, particularly stay-over tourism. However, a decline in domestic spending, reflecting largely a contraction in private consumption, mitigated the growth in the wholesale and retail trade sector.

The utilities and financial services sectors also contributed to real GDP expansion in 2012. Activities rose in the utilities sector as reflected by an increase in the production and consumption of water and electricity. Meanwhile, real output increased in the financial services sector as indicated by a rise in the net interest income of the domestic banks.

Growth in the construction sector was flat in 2012, as an increase in public construction projects including a public housing project, was offset by a decline in private investments. The lower private investments were in line with the drop in business loans and mortgages extended in St. Maarten. Meanwhile, the manufacturing sector contributed negatively to growth due mainly to a decline in repair activities on yachts that visited St. Maarten throughout 2012.

Government finances

Presenting a balanced budget has been a challenge for the St. Maarten government in 2012. Also, adherence to the limits of the approved balance was difficult, according to Tromp.

Based on the available data, the bank report concluded that government recorded a surplus on its current budget of NAf. 27.9 million in 2012, up from the NAf. 10.3 million surplus that was registered in 2011. This positive outcome was the result of an increase in government revenues that exceeded a rise in government expenditures.

On the revenue side, tax proceeds increased due mainly to more sales tax revenues reflecting the economic expansion in 2012. Also, revenues from room tax and wage tax were up compared to 2011. In contrast, proceeds from taxes on profit and property contracted. Unfortunately, no breakdown was available of the government expenditures.

Expectations for 2013 and 2014

St. Maarten’s GDP is estimated by the Central Bank to expand by 1.1 per cent, a deceleration compared to the real growth of 1.5 per cent in 2012. The economic slowdown is largely attributed to weakened activities in the restaurant, hotel, wholesale and retail trade sectors. Inflations will ease to three per cent reflecting mainly lower projected international oil and food prices.

For 2014, the economy is projected to grow by one per cent driven mainly by tourism, transportation and marine sectors. Growth in tourism will stem primarily from more stay over as cruise numbers are project to stay flat.

Inflation will ease further to reach 2.7 per cent supported by the projected decline in international oil and food prices. An increase in the excises on tobacco and alcohol will continue to “inflationary pressures,” according to Tromp.

Foreign exchange and banks

Foreign exchange income from the export of goods and services for St. Maarten was generated by tourism (72 per cent), merchandise (10 per cent), transportation (three per cent), one per cent each by fuel bunkering and international financial service. Other services accounted for some 13 per cent of the foreign exchange income.

For last year, tourism contributed NAf. 1.5 billion to the local economy, growing from NAf. 1.23 billion.

Tromp said the diversification of the economy away from tourism is good, but more effort is needed to continue the trend to make the economy more attractive and competitive.

Curaçao and St. Maarten generate sufficient foreign exchange to meet merchandise import, but this is “a declining trend” so it is very important to take measures to reverse it, he added.

The main monetary developments reflected a “moderate increase” in money supply for the countries and “moderation in private credit extension.” The declining trend in interest rates continued in 2012.

Banks have seen improved capitalization, further increases in non-performing loans (people unable to pay their loans) and a decrease in earnings and profitability. Institutional investors have registered an increase in assets and decrease in profitability, except non-life insurance industry.

Weak compared to region

Over the past years, the economic performance of Curaçao and St. Maarten has been weak compared to the region. It is estimated that real GDP in the Caribbean region expanded by approximately three per cent on average during the period 2010-2012. By contrast, Curaçao’s economy registered a meagre average growth rate of 0.2 per cent while St. Maarten’s was on average flat. In other words, Curaçao and St. Maarten are lagging behind the region.

Tromp said it is noteworthy in this context that Curaçao and St. Maarten, contrary to most countries in the region, do not face a high public debt burden. This favourable situation is attributable to the debt relief programme that was agreed upon as part of the dismantling of the Netherlands Antilles. However, despite this unique fiscal situation, the two countries seem not to be able to achieve a higher steady growth path. One of the reasons behind this situation is the fact that private sector investment growth has been rather slow over the past years.

Investors’ confidence has been negatively affected by several factors, including the sluggish economic recovery in our main trading partners, dampening the growth in net foreign direct investment in the two countries. Also, the frequent government changes, lack of policy consistency, and failure to address the weaknesses in the investment climate of Curaçao and St. Maarten have affected investors’ confidence negatively, Tromp stated.

Areas that need to be addressed considering the investment climate include the rigidities in the labour market, the red tape and administrative burden, and the high tax burden. Failure to address these weaknesses will deter growth in private investment and, consequently, a higher steady growth path.

Competition

St. Maarten’s economic growth in 2012 was attributed primarily to the tourism and transportation sectors. However, an analysis of the tourism sector reveals that St. Maarten needs to improve its tourism product to safeguard future growth. Also, growth in cruise tourism has been slowing down. Cruise visitors spend less on the island because the cruise ships nowadays offer a wide variety of retail products at competitive prices to their passengers. As the contribution of the cruise tourism sector to the economy might be declining over time, St. Maarten needs to diversify its tourism product to grow stronger in other markets.

Meanwhile, competition from other Caribbean destinations has been increasing recently. For example the marine trade sector, which traditionally contributes significantly to St. Maarten’s economy through ship repair activities and the provision of goods and services to yachts, is facing increased competition from other islands that offer the same services at more competitive prices combined with less red tape. These challenges need to be addressed soon for a stable long-term growth of St. Maarten’s main economic pillar.

Bron: The Daily Herald

 

Economische groei op St. Maarten

VRIJDAG, 26 JULI 2013

PHILIPSBURG — Op St. Maarten was er sprake van een economische groei van 1,5 procent in 2012. De economische groei werd hoofdzakelijk gedreven door een toename van de activiteiten in de sectoren restaurants en hotels en transport, opslag en communicatie. Zo stelt Emsley Tromp van de Centrale Bank van Curaçao en Sint Maarten (CBCS) in een toelichting op het jaarverslag van 2012.

De sector restaurants en hotels presteerde goed in 2012 door een sterke opleving in zowel het aantal verblijfstoeristen als in het aantal cruisetoeristen. De toegevoegde waarde in de sector transport, opslag en communicatie steeg door een toename van de activiteiten in zowel het lucht- als zeetransport. Terwijl de groei in het aantal verblijfstoeristen voor een groter aantal afgehandelde passagiers op de luchthaven zorgde, registreerde de haven van St. Maarten een toename in het aantal bezoekende schepen en vrachtbewegingen. Echter, de bouwsector van St. Maarten vertoonde een stagnatie in 2012, doordat een toename in publieke bouwprojecten (inclusief een sociaal woningproject) teniet werd gedaan door een afname in investeringen in private bouwprojecten.

Uit de toelichting blijkt ook dat de inflatie afnam tot 4,0 procent, vergeleken met 4,6 procent in 2011. Deze daling was voornamelijk het gevolg van lagere internationale olieprijzen, aldus de toelichting. Volgens Tromp blijft duurzame economische groei een noodzakelijke voorwaarde voor werkgelegenheid op de lange termijn, gezonde overheidsfinanciën en welvaart. Echter, een sterk herstel van de wereldeconomie blijft vooralsnog uit, hetgeen de groeiverwachtingen voor St. Maarten op de korte termijn tempert.

Bron: Amigoe, Curacao

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