Economic Outlook 2021 – 2023 1 Table of content Summary ................................................................................................................................................. 3 I. Introduction ......................................................................................................................................... 5 II. Economic Outlook 2020 ...................................................................................................................... 7 III. Economic Outlook 2021- 2022 ........................................................................................................... 8 Gross Domestic Product (GDP) 2021- 2022- Baseline scenario ...................................................... 8 Results Macro-Economic Indicators 2021 -2022-Baseline scenario ............................................... 9 Consumption ................................................................................................................................. 10 Investment .................................................................................................................................... 11 Export ............................................................................................................................................ 12 Import ........................................................................................................................................... 14 Gross Domestic Product (GDP) 2021-2022 –Optimistic scenario ................................................. 15 Results Macro-Economic Indicators 2021-2022-Optimistic scenario ........................................... 16 IV. Results Nominal GDP projection 2023 and its main drivers ............................................................ 17 V. The Global Economy ......................................................................................................................... 18 Global Inflation .............................................................................................................................. 19 Oil Prices........................................................................................................................................ 20 The U.S. Economy and its impact on the Caribbean Region ......................................................... 20 VI. Annex Assumptions ......................................................................................................................... 21 Table A: Assumptions Scenario: Cautiously Optimistic –Baseline ................................................ 21 Table B: Assumption Scenario: Optimistic .................................................................................... 22 2 Summary The effects of the worldwide COVID-19 pandemic in 2020 have been and still is of an unprecedent impact on the economy of Aruba. In 2020, tourism, investments and private consumption were highly affected resulting in an unprecedented decrease in the economy. Although the economic growth will still be under the 2019 growth 2021, 2022 and 2023 are giving positive trends in the projection. Compared to 2019, the estimation for the year 2020 shows a contraction of 25.2 percent of the Nominal GDP. The Nominal GDP in 2020 (Afl. 4577m) will be approximately at 75 percent of the level of 2019 (Afl. 6118m). The Nominal GDP decrease in 2020 compared to 2019 is induced by a sharp decline in all macro- economic indicators: Export of Goods and Services (44.1 percent), Private Investment (32.0 percent), Private Consumption (17.4 percent), resulting in a decline in Import of Goods and Services (31.7 percent). For 2021 and 2022 the estimated Nominal GDP will have an increase of 5.1 percent compared to 2020 and a projected growth of 6.2 percent compared to 2021. In this baseline scenario it is expected that the Nominal GDP for 2021 (Afl. 4,810m) will be at 78.6 percent of the level of 2019 (Afl. 6,118m), while the Nominal GDP in 2022 (Afl. 5107m) will be at 83.5 percent of the level of 2019. The main driver of the expected growth in 2021 compared to 2020 is an increase in Export of Goods and Services of 36.1 percent, due to more tourism revenue compared to 2020. The results for Tourism Export shows an increase of 46.6 percent compared to 2020. It is important to mention that ATA’s adjusted “Cautiously Optimistic” scenario for 2021 is taken as baseline scenario, with an expected amount of Average Daily Rate (ADR) and an expenditure (per night) in non-accommodation between 2019 and 2020 level. For 2022, the main driver in the expected growth compared to 2021 is the increase in Export of Goods and Services of 15.8 percent due to further growth in tourism revenue compared to 2021, and an increase of private investment by 47.5 percent, which contributes to the expected Nominal GDP growth of 6.2 percent in 2022. In addition, an increase of Private Consumption is expected by 4.4 percent. As a result, Import of Goods and Services is expected to increase by 19.8 percent in 2022 compared to 2021. For the optimistic scenario of 2021 compared the projections for the year 2021 and 2022 a growth of the Nominal Gross Domestic Product (GDP) for both years is estimated. The estimated Nominal GDP will have an increase of 10.9 percent in 2021 compared to 2020 and a projected growth of 5.9 percent in 2022 compared to 2021. In this optimistic scenario it is expected that the Nominal GDP for 2021 (Afl. 5077m) will be at 83.0 percent of the level of 2019 (Afl. 6,118m), while the Nominal GDP in 2022 (Afl. 5379m) will be at 87.9 percent of the level of 2019. Overall, the optimistic scenario shows a higher percentage growth in the main economic indicators as a result of a higher recovery in tourism. DEACI recommends using the cautiously optimistic scenario as the base scenario for 2021-2022. 3 3 DEACI is prudent with the projection for 2023 due to the increasing uncertainties in time. Therefore, these estimations have to be considered preliminary and used with care. For the year 2023, the projections show a growth of 10.8 percent of the Nominal Gross Domestic Product (GDP). The main driver of the expected growth in 2023 compared to 2022 are an increase in Export of Goods and Services of 21.0 percent in nominal terms and Private Investment that will have a growth of 10.7 percent in nominal terms. At the same time, a growth in Private Consumption of 1.8 percent is expected in nominal terms. 4 4 I. Introduction DEACI structurally monitors the economy and advises the Minister of Finance, Economic Affairs and Culture on current and future economic developments. The MARUBA model is based on the National Accounts and reflects the functioning of the Aruban economy, and is used to forecast the economic developments. After two Technical Assistance missions by the Caribbean Regional Technical Assistance Centre (CARTAC/IMF), during the months April and October 2020, where the MARUBA model has been extensively reviewed, an additional Technical Assistance mission was held by CARTAC/IMF in March and April 2021. The objective of this mission was to analyze and review the medium-term projections of the MARUBA model before proceeding to publish these projections. During this mission, proposed recommendations for improvement of the medium-term projection of the model were again implemented. The effects of the worldwide COVID-19 pandemic in 2020 have been and still is of an unprecedent impact on the economy of Aruba. Especially being a small island state, which is highly dependent on tourism. The economy of Aruba has been severely affected by the outbreak of COVID-19 and the subsequent lockdown in March 2020. To keep the economy performing, the government of Aruba has put in place a range of financial assistances for businesses and employees in the private sector that were most affected by the crisis with the financial assistance of the Netherlands, since 2020. The government also approved the tax crisis plan 1 and 2 to assist businesses in Aruba. The reopening of the borders in June 2020, in combination with tourists slowly returning to the island was still not sufficient for a solid economic recovery in 2020. Since March 2020, DEACI has been producing several scenarios with the Macro-Economic Model (MARUBA) to forecast economic developments that emerged from the pandemic in order to assist the Department of Finance in establishing the support to the Small and Medium enterprises and wage subsidies. In December 2020, DEACI presented the outlook for 2020 and 2021 based on data up to October 2020. After revising the projections based on new developments and data, DEACI presents in May 2021 the revised outlook 2020 and 2021, including projections for the medium term (2022-2023). It is important to mention that the estimate for 2019 has also been revised due to the revision of the National Accounts of Aruba published in February 2021 for the period 2000-2018 by the Central Bureau of Statistics. In this revised analysis, the tourism sector is recuperating at a faster pace than anticipated in the previous outlook. Private Investment remains limited for 2020-2021, but from 2022, an increase in Private Investment is expected as delayed projects in 2020 and 2021 are planned to reactivate in 2022. The government financing support (wage subsidies, FASE and SME’s financial support) to the private sector has been budgeted for the complete year of 2021 and has been included up to December 2021 in this outlook. By 2022, we assume that this financial support will be eliminated