Mixed results in GDP growth and IMAE. The ACP and Mulino could learn how to generate a positive climate for the new Canal projects from the previous Canal expansion.
Panama’s economy slowed in Q2 2025, with GDP growth decelerating to 3.4% year on year from 5.2% in Q1. The main drag on growth came from the transportation sector, particularly the Panama Canal, where growth dropped sharply as the inter-annual boost from improved water levels faded and the ongoing tariff war weighed on trade flows between Asia and the U.S. Excluding transportation, the economy grew 2.1% in Q2, slightly below the 2.6% rate in Q1, reflecting the impact of protests that took place from April to May. For the first half of the year, GDP rose 4.4%, in line with full-year growth expectations of around 4%.
The IMAE index through July confirmed these trends, showing cumulative growth of 4.67%. While transportation posted strong growth in July—which we view as a temporary improvement rather than a reversal of the broader slowdown—finance, tourism, and manufacturing also performed well. In contrast, construction showed a decline based on permit data, contradicting the modest growth reported in GDP figures. This discrepancy is significant, as construction represents 14% of GDP and is closely linked to housing and infrastructure investment.
The Panama Canal Authority (ACP)'s 2025–2035 strategy focused on water security and diversifying revenues. Key projects include expanding the Río Indio watershed, two new seaports, and the $2 billion Trans-isthmian gas pipeline. The latter could generate $1.7 billion in revenues annually but may also divert traffic from the Canal, reducing toll revenues. ACP CEO Ricaurte Vásquez announced that international companies are interested in in participating in the construction (with an estimated start date of 2027) and operation of the pipeline.
As with the 2006 Canal expansion, which was approved after intense political negotiation, social support will be critical. Environmentalists, indigenous groups, and other stakeholders are already opposing parts of the plan. For these projects to succeed, President Mulino’s government and the ACP must ensure visible benefits for communities, such as access to water, energy, and land titling, in order to build trust and national backing. This may require reforms to allocate ACP resources to local communities, ensuring that the projects strengthen the economy, the fiscal figures, and Panama’s social fabric.
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