De-acceleration continues in 2018, and China-Panamá relations are under scrutiny
Real GDP grew 3.1% y/y in Q2 2018, continuing its downward trend. Accumulated growth during the first half of the year was 3.7%. During the second quarter, the month-long labor strike in the construction sector (around 15 percent of GDP) brought activity to a halt; therefore, the positive surprise of the figure is that the economy grew at all in the quarter.
The sectors that posted the fastest growth were fishing, general government, transportation and communications, and social services and private health. Agriculture, financial intermediation, utilities and services to business registered moderate growth. Mining, manufacturing and “other social services” grew less than 2%. Construction grew 2% in the first quarter, but showed - as expected - negative figures in the second quarter for the first time in recent years. Domestic services and tourism declined in H1.
The Monthly Index of Economic Activity (IMAE) grew 2% y/y in July and 3.05% for the first six months of the year, continuing a downward trend. Both IMAE and GDP numbers point to growth below 4 percent in economic activity in 2018, as we projected at the beginning of the year, against the majority opinion of local and international analysts.
Inflation during the first eight months of the year remained under control, registering 0.8% YTD. However, with recent increases in the price of oil and its derivatives, inflation is starting to pick up, as can be seen from August CPI figures, which reflected an increase of 1.1%.
Balance of payments data for the first half of 2018 showed a current account deficit of US $1.8 billion, or 5.8% of a nominal GDP of US $31,559 million (the official value for the first half of the year). Exports of goods increased 10.9%, from US$6.4 billion to US$7.1 billion YTD. Imports rose from $11.1 billion to $11.9 billion in H1 2018. The “services account” surplus increased 10.3%, mainly due to increases in air transportation of passengers (US $127 million), tourist expenditures (US $101 million) and Canal toll revenues (US $112.5 million). FDI registered US $ 2.3 billion during H1 2018, decreasing 13.2% with respect to the same period of the previous year. In absolute terms, it decreased US $353.2 million.
The presidential campaign now has a new topic on the agenda: how international relations between the People´s Republic of China and the USA may affect the development of China-sponsored infrastructure projects in Panama, and the potential costs of any US sanctions (however mild or unlikely these may be). We comment on the commercial relationship that is beginning to strengthen between Panama and the Asian giant.
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