Slower growth amidst regional uncertainties

PANAMA - Forecast 17 Dec 2015 by Marco Fernandez

The Panamanian economy continues on its path towards more moderate growth: real GDP expanded by 5.6% in Q3 and 5.8% until September 2015 y/y. Transportation, storage and communications, realty and services to business, construction, financial intermediation, and electricity, gas and water were the leading sectors in Q3.

We project 5.6% GDP growth for this year and a slight improvement in the short term: 5.9% in 2016, 6.1% in 2017 and 6.6% in 2018. Fixed capital formation growth will slow down in 2015 due to the decrease in NFPS capital expenditures and the Panama Canal expansion reaching its final stages of execution. For the following years, large projects in energy, ports, mining and logistics sectors will be the drivers that expand fixed capital formation 3.1% per year during the 2016-2018 period.

Exports, the largest component of aggregate demand, are expected to fall 2.9% in real terms this year, but will grow 4.1% per year on average during the 2016-2018 period. Copper exports and the operations of the newly expanded Canal will be the main drivers in the forthcoming years. We see private domestic consumption expanding at a slower pace than in previous years (CAGR 2016-2018: 3.8%) over the next three years.

Inflation fell markedly to 0.1% on average up to November 2015, from 2.6% in 2014. We expect it to rise slightly to 0.3% by the end of this year, 0.4% in 2016, 0.9% in 2017 and 1.2% in 2018.

We don’t expect unemployment to increase severely in the next three years from its current level of 5.1% in 2015. Open unemployment rose to 3.8% this year, and it will fluctuate between 4.0% and 4.1% in the next three years.

The NPFS deficit is estimated at 1.2% of nominal GDP for 2015, projected to shoot up to 1.9% next year, and then to rise to 2.2% and 2.4% in 2017 and 2018 respectively. In 2015, the deficit will be below the legally allowed cap - but in the next three years, it will exceed it. However, the public debt to GDP ratio will continue to fall in the short term in comparison to current levels.

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