A Mild Slowdown, the 2016 Budget and the Political Headlines

PANAMA - Report 01 Oct 2015 by Marco Fernandez and Guillermo Chapman

As we expected, real GDP growth for the second quarter of 2015 was 5.8% and 6.0% in the first semester. In H1 2015, the dynamic sectors of the economy included electricity, gas and water; social and private health services; and financial intermediation. Commerce, Transportation, and Construction continue to have a sound performance growing by more than 4%. However, the perception of some business leaders and analysts is that the economy is slowing down more than the official figures show. They blame the Varela administration for the lack of dynamism in investments in public works, in comparison with the outlays of the previous Administration: 44 percent lower in the first semester compared with the first semester of 2014.

Current account deficit fell by 70.3% y/y in Q2, the lowest level since 2010. Strong increase in services exports and the decline in oil related imports as the main reasons. CPI growth continues to slowdown, and came at 0.4% for August 2015 Y/Y. The increase between January and August stood at 1%.

A Budget bill for 2016 which covers the non-consolidated public sector totaling $20.1 billion – 2.7% compared to the 2015 budget – was submitted to the Legislative body by the Executive. Out of this total, the NFPS amounts to $15.0 billion. Public investment would be around $4,521 million, or 8% of estimated GDP, slightly lower than in recent years. The proposed budget would meet the fiscal deficit limit of 1.5% of GDP by 2016, as set in the Fiscal Responsibility Law. We expect the bill to pass without major changes.

President Martinelli has not returned to Panama from his self-imposed exile in Miami, but no judicial case has been levied against him so far. Around ten former officials and government contractors are in some sort of legal restriction: house arrest, jail detention or banned from leaving the country. Meanwhile, President Valera’s approval rating fell to 42 percent in August from 78 percent at the beginning of the year, and six points less than in the previous month according to CIP-Gallup, continuing the recent trend.

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