We forecast lower growth in 2017 than the consensus… but it will be a solid one
With uncertainty surrounding the new U.S. administration’s policy stance on trade and fiscal spending, it is difficult to pinpoint the direction of the global economy. While fiscal stimulus has the potential to boost the U.S. economy in the short term, U.S. President Donald Trump’s well-documented protectionist stance has the potential to more than offset any possible gains. International trade is important for Panama: around 16% of GDP is connected to external markets.
Panama experienced an adjustment period last year. While real GDP grew 5.8% in 2015, Q3 2016 saw just 4.9% ytd growth. We estimate that growth dipped slightly lower for the full year 2016, settling at 4.6%, although the minister of economy and finance, citing international agencies, still projects growth at 5.2%. For this to happen, Q4 growth would have to have been 6%, a feat incompatible with the available data.
Along with fixed capital formation, the Panama Canal will drive growth in 2017, although a rise in local interest rates will limit private consumption expansion. Real GDP will grow 5% in 2017, and 5.4% in 2018, when exports of goods increase further via copper exports from Minera Panama, as it begins operations then. Inflation will be higher, but still mostly subdued, as rising oil and commodity prices affect transportation and staple food costs.
This year should present similar variations to those in 2016 – and resemble last year in overall shape. For H1, international analysts’ projections were also more optimistic than ours, but these pivoted closer to our projections, as more data became available.
Twice a year (in July and January), the president delivers a state of the nation speech to Congress. The January meeting usually focuses on the future plans of his administration. President Juan Carlos Varela mentioned topics related to transparency and corruption nine times during his 30-minute speech, but avoided discussing more structural reforms.
On January 4th, the former advisor to Congress, Alfredo Juncá, was elected by the body as the new magistrate of the Electoral Tribunal, with a majority (17) votes from the ruling Panameñista party, and 21 votes from ex-President Ricardo Martinelli’s party, Cambio Democrático. Juncá will replace outgoing magistrate Erasmo Pinilla, who served for a 10-year term.
After news broke in December of Odebrecht’s confession that it paid bribes of up to $59 million to government officials in Panama, civil unrest surged. In an earlier press release, government officials confirmed that Odebrecht would be allowed to continue working on ongoing projects, but said the company would be blacklisted from any future public bidding on infrastructure project contracts.
The prosecutor’s office held a press conference to announce that 17 people would be brought in for questioning over the case. The list includes former President Ricardo Martinelli’s two sons, and his brother, Mario Martinelli, also implicated in other corruption cases. As of this writing, no one has been detained in relation to the Odebrecht case.
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