PANAMA ECONOMY INSIGHT MONITOR

Ayudándole a tomar decisiones en un entorno económico global
 
 

Monday, January 17, 2011

Panama's economy will grow 9.2% in 2011 and double-digit in the next years

Before U.S. financial crisis, Panama's economy was growing at double-digit rates. Global downturn affected adversely this growth, reducing it to only 3.1% in 2009. By 2010, forecasts from international agencies such as the International Monetary Fund (IMF), World Bank and the Economic Commission for Latin America and the Caribbean (ECLAC), did not exceed 5%, however, Panama economy grew over 7%.
Panama Economy Insight forecasts that Panama's economy will grow 9.2% in 2011. In subsequent years, the economy will return to the levels that existed before the world economic crisis, growing 13% and 11% in 2012 and 2013 respectively. 

FORECAST - KEY ECONOMIC INDICATORS OF PANAMA
INDICATOR 2009 2010 2011 2012 2013 2014
Economic growth rate (%) 3.1 7.1 9.2 13.0 11.0 4.9
Inflation rate (%) 2.4 3.5 3.8 4.5 3.8 3.8
Unemployment rate (%) 6.6 6.5 5.5 4.6 4.2 3.7
Interest rate (%) 7.9 8.0 8.6 7.8 8.2 9.4
Fiscal deficit or surplus (as % of GDP) -1.0 -1.2 -0.7 0.0 -0.4 -1.6
Public debt (as % of GDP) 46.3 43.6 39.7 34.2 30.4 29.9
Panama's economy grew 8.4% in the third quarter of 2010 according to data of gross domestic product (GDP) released by the National Institute of Statistics and Census (INEC). This occurred at a time when even Panama Canal expansion by 5.250 billion dollars has not entered its peak construction. Moreover, construction of the first line of subway in Panama City in by US$1.446 million would only be starting in 2011. Similarly, construction of a copper mine for a total investment of 4.320 billion dollars just be starting also in 2011. US$4.377 million have projected electricity sector investment over the next six years, according to a report released recently by the Public Services Authority (ASEP). Panamanian Association of Hotels (APATEL) has estimated hotel investment by 2.387 million dollars in 2010-2012. Government plans to make public investments by US$13.6 billion in 2010-2014. That is, Panama's economy is growing very strongly, not yet fully entered the large investment projects. Cumulative growth of the first three quarters was 7%. The strength of the Panamanian economy is evident in the business environment and good employment prospects, in fact recently announced by Manpower.
This growth of 9.2% in 2011 will lead to decrease of one percentage point of unemployment rate, placing it at 5.5% in August 2011. By 2012 and 2013, unemployment rate will drop to 4.6% and 4.2% respectively because double-digit economic growth during those years. Panama's labor force, measured by economically active population, will grow by 3.3% average annual during 2011-2014. Private enterprise participation on employed population will expand due to strong growth of formal jobs.
Aggregate demand boom, together with increases in oil prices, will lead to important rise of inflation rate, but not as dramatic as before of US financial crisis. Inflation rate will increase to 3.8% and 4.5% in 2011 and 2012 respectively. In fact, inflation rate will stabilize at 3.8% per year, at least until 2014. Specifically, inflation rate will not return to low rates recorded between 1997 and 2006, when annual average rate was only 1.3%.
Competition for skill workers will raise wages, but those who have not skill, most vulnerable groups, will be affected by inflation rates consistently higher than those observed during 1997- 2006.
As a result of high economic growth, fiscal deficit of Non-Financial Public Sector (NFPS) will be only 0.7% in 2011 and will fall to 0% and 0.4% in 2012 and 2013 respectively, when economy is growing at double-digit.
This reduction of NFPS deficit, together strong economic performance, will lead to a dramatic decline in public debt as a percentage of GDP. Public debt as percentage of GDP will decrease from approximately 43.6% in 2010 to only 30.3% in 2014.
Obviously, with this strong economic growth, biggest problems of President Ricardo Martinelli will be high inflation, to maintain high execution of public investment budget and to help to most vulnerable population groups.
In political scene, a economic growth as high as projected by we, together to reduction of unemployment rate, creation of formal jobs, high public investment and improvement in public finances, will incentive to President Martinelli to think in your re-election. In fact, his party (Cambio Democrático) seeks to reform the Panama Political Constitution to eliminate obstacles to re-election. However, in first attempt, Legislative Assembly filed the project of re-election law. Lack of persons with political leadership within party of President Martinelli, get ahead to political opposition in 2014 election, especially Democratic Revolutionary Party (PRD). In this sense, if not achieved the reforms to Political Constitution that allow for re-election, is likely in 2014 election look back a grand coalition to confront the political strength of PRD.
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