Three themes that make us reconsider our economic expectations for 2018
The Monthly Index of Economic Activity (IMAE) expanded at a low rate of 3.1% y/y in February and 3.9% YTD confirming the predictions of business people of a worse year than 2017, when the economy grew at 5.4%. Still, international analysts and rating agencies predict a better year in 2018. The main drivers during the first two months of the year were, again, external-oriented activities such as transportation and communications (Canal, ports, and air transportation), commerce, the manufacturing industry, and construction.
Although Panama Canal operations (4 percent of GDP) continue to grow, toll revenues slowed down (6.4%), total transits fell (-3.4%) and net tons grew (2.6%) YTD February 2018. Construction permits increased 19 percent in January, but cement production dropped 10.6% up to February. Energy production (a close, but imperfect indicator of overall activity) grew 3.7 percent up to February. Inflation remains low (despite higher cost of gasoline) at 0.4 percent on average in the first two months. Colon Free Zone (5 percent of GDP) showed a good January, but a poor February, with an accumulated growth of 6.6 percent in nominal terms.
Three themes point towards a worse-than-expected year: mining (or the lack of it), the strike in the construction sector, and economic and political relations with Venezuela at their lowest point. Copper exports that we projected to reach one billion dollars during 2018 will be delayed until 2019, thus reducing total exports by about 1.5 percent of GDP. Next year exports of Minera Panama may reach two billion dollars.
The labor stoppage in the construction industry may last at least two weeks before any settlement is reached between the construction chamber and the hardline, political-oriented union. According to unofficial estimates, the strike is costing around US$ 30 million per day in delays and interest payments.
The de-facto break in economic and political relations between Panama and Venezuela started when the Government of Panama issued a list of Politically Exposed Persons that were prohibited to make transactions in the local financial center; of course, top Venezuelan officials were on the list. The result was a freeze of transactions and daily flights between the two countries stopped for ten days. On April 27, the diplomatic and commercial situation reverted to its pre-crisis status.
The National Banking System showed profits of US$ 1,505 million in 2017, 21.4% more than the previous year. ROE for the system was 13.7 percent and ROA was 1.5 percent, both satisfactory indexes. However, this average hides a dispersion of profitability between banks according to size: smaller banks tend to have lower returns and tighter margins.
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