Review of key issues: Economic activity, Canal, and the Pacific Alliance
The Monthly Index of Economic Activity expanded 5.5% y/y in February, and 5.2% from January to February, the highest growth since April 2015. We expect real GDP to increase by around 5.3% in Q1 2017. Most indicators showed that the highest early-year growth revolved around Panama Canal expansion, and international trade. These are: 1) net Panama Canal Tons 2) Colon Free Zone Re-Exports 3) Panama Canal Toll Revenues, and 4) container movement in ports. These grew 26.3%, 23.6%, 17% and 16.4%, respectively. Economic indicators that decreased most were liquor production (-22.3%), non-residential construction permits (-13.6%), slaughter of beef cattle (-12.9%) and new car sales (-12.2%).
Two activities fueled growth in 2016: construction (which explained 27.3% of the 4.9% overall growth) and transportation, including through the Canal (which explained 5.3% of the year’s growth, but 18.7% of Q4 growth). We explore in this report whether this trend will persist in 2017, using Q1 data and analysts’ information.
President Juan Carlos Valera visited Chile to advance several topics of bilateral interest. One of the most noteworthy issues is the possible participation of Panama in the Pacific Alliance. This is the most important trade and investment pact Panama has seen since the Free Trade Agreement with United States, in June 2007.
The missing piece in this puzzle is Colombia, la bete noire of Panama’s international economic relations. However, there are also other even more fundamental topics Panama must address promptly. The potential economic benefits for Panama are more in the area of providing efficient value chain gains, especially on the new land destined for logistics expansion on the west side of the Canal. The scope of the economic benefits is uncertain, and the institutional and political restrictions imposed by the Alliance charter are important. Panama´s gloomy relations with Colombia don’t help the Varela’s cause in this respect.
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