Aruba: Country Economic Forecast: 21 Mar 2011

According to the central bank's latest estimate, GDP contracted by 3.7% in 2010, following a plunge of over 8% in 2009. The economy was hit by both the impact of the global crisis on tourism and construction, and the temporary shutdown in July 2009 of the Valero oil refinery a major contributor to activity on the grounds of unprofitability and tax issues. The closure of the latter for nearly all of 2010 led to a massive deterioration in the trade and current account balances, despite the onset of a modest recovery in tourism receipts. However, the refinery has re-started operations this year. As a result, the current account is expected to swing from a deficit of 16% of GDP in 2010 to a 5% surplus this year. The resumption of activity at the refinery will be the main factor driving GDP growth to close to 8% in 2011, but the continuation of gradual recovery in tourism and the first signs of a turnaround in the construction sector (helped by the building of a new luxury hotel to be opened in late 2012) should also offer some support. Further out, new plans between the government and Valero on a LNG project for the island should help to reduce utility costs. The budget deficit widened sharply during the recession and, though the government agreed with the IMF about the need for fiscal consolidation, it emphasised the importance of improving infrastructure to stimulate growth. Meanwhile, inflation is expected to remain modest this year, at just 2.5%.