Second COVID-19 wave smacks economic recovery
The second wave of COVID-19 has overshadowed expectations for 2021 consolidation of the economic recovery formed after the announcement of the availability of vaccines, and the prospects for extensive worldwide vaccination campaigns. In December it grew evident that the country was entering a second wave of the pandemic, as it was the third month with the highest number of new cases, at 26,797, after first-wave peaks in July and August. The government has therefore tightened measures to control mobility and economic activities. By the end of 2020, the Dominican Republic had the second-highest number of COVID-19 cases in Central America and the Caribbean, after Panama, although with fewer related deaths than in Guatemala, Honduras or Panama.
Though economic activity began to recover in H2 2020, the year ended with economic contraction of close to 7% of GDP, its highest in the last 50 years. The economy contracted by -7.3% in the year to November, from January-November 2019. December economy activity data is not expected to significantly change this situation. We project 2021 growth at around 4.4%. But there’s great uncertainty associated with how fast the second wave of COVID can be contained, locally and globally, and how quickly progress can be made in vaccinating the Dominican population. Vaccinations of the population most at risk are expected to begin in March.
2021 is seen as a year of potential governance difficulties, given that, despite economic activity recovery, high unemployment is expected to persist, with inflationary pressures in H1 and a smaller space for the maintenance of expansive monetary and fiscal policies. Too, the government must agree on the Fiscal Pact, and begin dismantling the high fiscal deficit generated in 2020 as a result of the impact of COVID-19. The government has indicated that it hopes to promote a wide-ranging tax reform, as undertaken in the early 1990s -- but has not yet outlined detailed plans.
A re-composition of political forces is also expected, with the PLD subjected to strong pressure to maintain its leadership, while the judicial processes related to corruption accusations against members and relatives of the former Danilo Medina administration progress.
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