Covid-19 eases its grip and the growth outlook improves

PANAMA - Report 30 Apr 2021 by Marco Fernandez and Alex Diamond

So far this year the IMAE is showing a decrease of 9.73% for February and 12.2% during the first two months of the year. We must take this information cum granus salis because, during the first quarter of 2021, most commercial activities were shut down because of the pandemic. In contrast, in 2020, the State of National Emergency did not start until March 13. We expect a surge in activity in Q3 and Q4 if the level of contagion and mortality remains low compared with the end of last year. The IMF growth projection of 12.0% for 2021 seems over-optimistic compared to our rate of between 4.5% and 5.5%. The MEF projects 9% growth based on the beneficial effects of the re-opening of most economic activity. We ask from which component of internal demand will growth come from during the rest of 2021. It will not come from construction, banking, tourism, the Panama Canal, Colon Free Zone, or retail, but from copper mining, seaports, and wholesale commerce. Vaccination – advancing at a slow pace with limited coverage in terms of age and geography – needs to speed up to provide a surge in consumption for the rest of the year. Still, we believe that the source of internal demand in the coming months will be household consumption, fueled by the expansion of the real balances in the banking sector since the beginning of the year, and a slight but steady improvement in the labor market.

The Dialogue Commission appointed by President Cortizo to discuss the reform of the pension programs of the Social Security Agency is moving at a snail’s pace despite the need for deep reforms before the financial reserves are drained sometime in 2024.

The vaccination rate is 4.4% of the total population, higher than in other countries in Central America except for Costa Rica, but below the numbers of Chile (32%), Uruguay (13.8%), and the Dominican Republic (5.8%). Most doses are coming from the Pfizer laboratory, with a minor fraction from AstraZeneca. In the past week, Panama experienced a turnaround in its epidemiological numbers, moving from the worst to the best in the region, which warrants an explanation that the authorities are not providing. According to the Gorgas Commemorative Institute, the answer could be that the seroprevalence in Panama is higher than the numbers suggest, reaching perhaps 40% of the population.

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