Economic projections for 2019 are optimistic…but some issues must be closely followed
International analysts are bullish about the growth of the Panamanian economy next year: the IMF projects 6.8%, the World Bank 5.4%, ECLAC 5.2%, and the Ministry of Economy and Finance (MEF) assumed an implicit real growth rate of 5.8% in the budget (not yet approved). We projected a 5% growth rate for 2019 in June (after the construction labor strike) and do not foresee new events that point to a change in this forecast either up or down. Some of the issues we mentioned as positive sign of acceleration in the short and medium term after what we consider a dismal 2018 were: the first year of copper exports from Minera Panama (one billion dollars of exports in 2019 and two billion in 2020, according to our sources); the World Youth Day (WYD) in January, which will boost consumption, tourism and hotel occupancy in a short period of time; a full year of construction (rather than only ten and a half months of activity in 2018); the inauguration of a large thermoelectric plant fueled by LNG; and the increase in public expenditures (not necessarily investment) during the first half of the year because of the election process and the recently approved new limit to the NFPS deficit.
On the precautionary side, we mentioned the lack of growth of new loans and the current account deficit, which create a gap between GDP and national disposable income, the latter being the main determinant of household consumption. Construction (around 18% of GDP) will continue its slowdown despite a year in which we anticipate no further labor disputes regarding wage increases in the sector. However, the inventory of properties is at a historical high. Furthermore, interest rates in the local markets will continue to increase because of the double effect of higher rates in the US and the stricter conditions that banks are imposing on potential borrowers, corporate as well as personal, due to new regulations.
In this report, we discuss the following possible economic risks for 2019:
- The implications of the political process of restructuring the pension system
- China-Panama relations and the US administration's foreign policy
- The legal status of Minera Panama
- Panama and the Gray lists
- The Constitutional reform
- The crowding-out effect from the civilian use of fresh water and the requirements of the Panama Canal for its growing operations
- The effects on the Panamanian economy of the trade war between China and the USA
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