GDP slows in Q1 even before the big construction strike
Real GDP expanded 4.2% in Q1, the lowest quarterly growth in the past three years. Activity was driven by fisheries, 30.2%; general government (12.6%), transportation and communications (5.2%), construction (4.9%), social services and private health (4.8%), financial intermediation (4.1%) and commerce (3.8%). The stagnant sectors were hotels and restaurants (-3.1%) and domestic services (-0.4%). These numbers are consistent with our estimates of 4.5% for the year, before the one-month strike by the construction labor union (from mid-April through mid-May). We must wait for Q2 data to determine the real impact of this strike.
The Republic of Panama is finally engaging in a reform of its financial system as a step towards improving its transparency and reducing the risk of returning to the “gray list” of non-cooperating countries in issues related to money laundering. One of the reforms is the “modernization” of the financial sector, a proposed law that is a mix of regulatory issues and promotion of new financial activities. This law initiative aims at the adoption of new financial products as well as improving instruments and institutions to make them competitive and efficient. The proposal was developed with the cooperation of the government, unions and associations of the financial sector.
The current account reflected a deficit of US$ 547.4 million, 27% higher than in Q1 2017, or the equivalent of -0.8% of our estimated GDP. This is the result of a trade deficit in goods (US$2.5 billion) and a deficit in the income account of US$ 1.2 billion. In addition, foreign direct investment registered a balance of US$ 1.0 billion, contracting 17% YoY in Q1 2018. The percentage distribution of foreign direct investment, which in absolute terms fell by US$ 226 million, was 31.1% reinvested earnings, 39.8% other capital and 29.1% equity.
According to data extracted from the environmental agency in Panama, since 2016 there has been nearly US$13 billion worth of investment projects in Panama for which environmental impact studies have been submitted for approval by the agency. The largest share of the investment, 27% or US$3.6 billion, corresponds to 283 residential real estate projects across the country. Ten projects located mostly in the city account for half of these investments. The lack of large projects is not a constraint on the expansion of the productive capacity of the country, but their financing and physical completion depend on bureaucratic red-tape and expectations about future demand and changes in the political environment
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