2018 is looking like 2017
Thanks to significant economic recovery in Q4, real GDP growth in 2017 was 4.6%. Until September, economic activity was falling, and running at a cumulative 3.9%. In December, y/y inflation climbed to 4.2%, still within the 4.0% ± 1.0% target range. Inflation returned to normal levels, as the positive oil shocks of previous years faded.
For 2018, we expect unemployment to either remain stable or to rise slightly, with slower growth helping to contain inflationary pressures. Expected foreign currency earnings also point in the same direction for Q1 and part of Q2, since that is the high season for tourism, and due to remittance-propelling employment developments in the United States. Monetary authorities are in a comfortable position to defend the exchange rate, due to higher international net reserves.
But oil prices above expectations will likely generate pressure on both prices and the current account, and could push the Central Bank to draw from its reserves. In 2018, the current account deficit is expected to close higher than in 2017, amid moderate export growth. The currency is on track to weaken, to DOP 49.50 per dollar at the end of Q4. But budget law projections put the DOP at 51 by yearend.
It’s is likely that, as in 2017, the 2018 deficit will reach at least 2.5% of GDP. So the debt of the NFPS would reach 40.5% of GDP by yearend.
Prospects for justice in the Odebrecht case have turned bleak. Many have perceived that, despite Odebrecht's confession, the prosecutor's case was deliberately weak, since the political implications of a serious effort to bring those involved to justice would be very painful for the ruling PLD. In recent days, this perception has intensified, as the prosecution has requested a four-month extension to complete the case files. Failure to bring justice in the Odebrecht case might deepen skepticism and generate public demobilization, or it could, conversely, exacerbate public indignation, and give new impetus to the mobilizations, levying greater political costs on the PLD.
The proposals for a new law on elections and political parties remain in limbo, and the chances of getting good legislation approved seem increasingly distant.
PRM, the new main opposition party, seems to be making a successful strengthening effort. Among critical steps to becoming a serious competitor in 2020 will be its 2019 primaries, which will also be a source of renewed tensions, and the articulation of alliances that aspire to displace the PLD, in power since 2004.
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