A worse than expected year with elections looming
The Monthly Index of Economic Activity (IMAE) expanded at a rate of 2.9% y/y in March and 3.5% YTD confirming our predictions of a slower 2018 compared to 2017, when the economy grew at 5.4%. The main drivers during the first quarter of the year were commerce, transportation and communications (Canal, ports and air transportation), public administration and electricity, gas and water services.
On May 18, the construction sector’s labor strike ended as SUNTRACS (the worker's union) and the Panamanian Chamber of Commerce (CAPAC) agreed on a wage increase of 14.75% for the next four years. Three percent in the first two years, and four percent in the last two years. According to representatives of the sector, it might take more than 15 days to fully resume the pace of construction activity in projects. With some assumptions about a potential recovery in the pace of some projects (especially investment and infrastructure projects) within the next seven months, our outlook for the construction activity in 2018 came down to 3.0% growth y/y.
In the previous edition, we forecasted a growth rate of 4.5% for Real GDP during 2018 that already showed a slowdown of the economy from 5.4% growth in 2017. Our 2018 economic outlook suggests that the construction sector, which already had a slowdown in Q1 2018, will have a strike impact of 1.0% on this year’s total GDP growth. As a result, the expected growth rate is now at 3.5% for 2018.
Four themes are key to understanding the main political issues one year before the general elections: the nature and performance of the Legislative Assembly, the prospects of a constitutional reform under President Varela’s aegis, the implications of Ricardo Martinelli’s likely return to Panama after a year in jail in the U.S., and possible presidential candidates of the main political parties, which are on the verge of holding primaries.
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