The economy of St. Maarten can be considered to have performed relatively weak with mixed indicators in the first quarter of 2003, compared to the corresponding period of 2002 .The weak performance of the 2002 has continued to persist in the 1st Quarter of 2003, even when we compare the information to the same period of 2001. Normally, when the economy is affected by external factors such as hurricanes and/or unnatural disasters such as 9-11, the following year the economic indicators should indicate relatively high increases (which are considered inflated increases). However, when we observe only moderate relative increases and especially negative growth in the various economic indicators then we know that the economy has not regained its full growth.

This pattern was also observed in our most comprehensive indicator namely, the Turnover tax (ToT). The ToT showed an accumulated increase in the 1st Quarter of 2003, compared to the same period in 2002. Even when we compared the 1st Quarter of 2003 with the corresponding period of 2001, we see a moderate increase in ToT. When we factor out recent inflation figure patterns for the last three years (i.e. 1999-2001), then we can only assume that the economy has increased moderately. The exact indication is not known, as the inflation rate for the first quarter of 2003 was not available at the time of compilation of this report. Nevertheless, we can say that the performance of the economy was relatively moderate.

A possible explanation for the moderate performance could be the continued weak performance of the US economy, which continues to be relatively weak, and consumer confidence is still relatively low and it has not rebounded fully. Despite, the numerous interest rate cuts by the Federal Reserve, the economy has not fully recovered from its stagnant state. As we are aware, the economy of St. Maarten is primarily dependent upon tourism especially from the US market. Consequently, we observed a moderate performance of the economy.

Considering that the economy mainly depends on tourism, it is critical to ascertain how the various sectors of the tourism industry performed. When we look at stay-over tourism, we witnessed a moderate increase in the 1st quarter of 2003, compared to the same period of 2002. Naturally, the latter quarter suffered from the delayed impact of 9-11 that spilled over into the first half of 2002, which resulted in the categorization of stay-over tourism performing poorly despite the increase in 2003 Quarter 1. This finding is strengthened by the fact that quarter 1 of 2003, observed a decrease when compared to a “neutral” corresponding period such as 2001 Quarter 1. Obviously, St. Maarten does not exist in a vacuum and most tourism destinations are all experiencing the same relative pattern/performance.

An additional source of concern was indicated in the cruise tourism industry. Over the last five years cruise industry has been one of the main driving forces of this tourism based economy, where the yearly increases have always been in the high double digit numbers. However, the performance of cruise tourism has been relatively marginal compared to the current historical data (i.e. the last five years). Considering the previously-mentioned discussion on the inflated increases, cruise tourism experienced a moderate increase in the 1st quarter of 2003 compared to the 1st quarter of 2002 (despite the delayed effects of 9-11 in quarter 1 of 2002). In addition, when we compare 2003 1st quarter to the same period of 2001, we observed even a smaller increase. This gives reason for concern as it has been argued that this industry (i.e. cruise tourism) has been keeping our economy (especially the Front Street businesses) afloat. With the weak performance of this sector, this could eventually lead to more businesses closing their doors as well as an increase in unemployment.

Strengthening the previous analysis, government revenue dropped in the 1st quarter of 2003, compared the same period in 2002. This is critical, as we should at least have experienced “artificial” increases because of the delayed effects in 2002 quarter 1. In addition, when we consider that a significant reason for the revenue decline was a direct result of wage tax decreasing, then we can see that the economy is certainly slipping. This is even strengthened by the fact when we compare the first quarter of 2003 with the same period of 2001, where there was an even greater decrease in government revenue.

Consistent with this pattern was the developments of Federal Government revenue such as AOV/AWW, which we utilized as a means to measure and monitor developments in the labor market. AOV/AWW has shown a significant decrease in the first quarter of 2003 compared to both corresponding periods of 2002 and 2001. Similarly, the pattern was exactly the same with AVBZ, as it was with AOV/AWW. The two above-mentioned indicators (AOV/AWW & AVBZ) are consistent with developments in the wage tax, indicating that unemployment may be increasing.

The performance of the economy by monitoring developments of the utility company, G.E.B.E., is also critical to our analysis. To this end, we observe marginal increases in water production in the 1st quarter of 2003, compared to both corresponding periods of 2002 and 2001. However, electricity production during the same period demonstrated higher increases.

Despite the above-mentioned, confidence in the economy of St. Maarten can still be considered relatively good, as the number of persons wishing to establish a business in St. Maarten has increased in the first quarter of 2003, compared to the same period of 2002 and 2001. This could partially be explained that individuals have confidence in the economy, they have not studied the economy sufficiently, they could be requesting business licenses for different motives other than to operate a business immediately, and/or the numerous projects of government to increase the tax base, which have been specifically trying to target businesses that have been operating without a license.

To verify the above-mentioned assumptions, we see that there are a number of existing businesses, which have requested a branch license, which could possibly show confidence in the economy. This perspective is somewhat dampened by the fact that the number of cancellations have also increased in 2003 1st quarter, relative to the corresponding period of 2002 and 2001.
Developments in the gasoline industry have also been consistent with our economic indicators, which is a general slowing of the industry in the 1st quarter of 2003, compared to 2002. In particular, when we compare the 1st quarter 2003 with 2001, to factor out the delayed effects of Sept. 11, we observe that the gasoline industry has also experienced a slow down in 2003. However, within these developments there was some shifting of activity from one wholesaler to the next, thereby creating the impression (at least for one wholesaler) that economic activity is booming. In actuality, one was gaining volume and market share, while the other was loosing, however aggregately the industry have begun to slow down.

In conclusion, the economy continues to perform relatively weak with slight signs of recovery. Unfortunately, the weak performances have outweighed the signs of recovery and have given cause for concern. Despite the above-mentioned, it is imperative that we examine these results within its proper context and the fact that we are primarily a tourism-based economy that is heavily dependent upon the US tourist market. Considering that the US economy continues to perform relatively weak, it is a foregone conclusion that our economy will continue to experience some weakness. This will and it has spilled over into the local domestic economy where unemployment has begun to filtrate into the economy and in particular contributed to the worsening of the government coffers.

For this reason and the strengthening of the Euro, this is the opportune time to tap into the European market for additional tourists. Considering the fact that St. Maarten has lost many of the Latin American market mainly as a result of the economic problems in those countries, alternative destinations are imperative to penetrate to make-up for the loss of tourist arrivals and expenditures. In addition, targeting the European market is consistent with the diversification efforts of government outlined in the CEDP (i.e. diversification of both tourism and the economy in general).

In the final analysis, the war with Iraq and the consistent possible terrorist threats to the US economy, cautiously optimistic continues to be the order of the day. It is hoped and expected that the latter part of the year will observe a complete rebound. Obviously, this depends significantly on St. Maarten not experiencing a major hurricane this season and other external factors such as no additional terrorist attacks and/or threats.