Growth slowly recovers
Preliminary figures indicate that economic activity has continued to slowly recover. The monthly indicator of economic activity for September and October estimated real GDP growth at 5.1% and 5.2%, respectively (to August, the monthly average was 4.7%). We expect that November and December figures will push real GDP growth to about 5% for the year, for seasonal reasons, painful tourism performance notwithstanding.
November inflation was 0.37%; accumulated inflation since January reached 3.45%; and annualized inflation was 3.23%. This means annual inflation in 2019 will end within the target range (of 4% +/- 1%), and very close to its midpoint.
Following a seasonal pattern linked to the strong growth of demand in Q4, monetary aggregates grew markedly in November and December, though annualized growth was much lower. As regularly occurs, we’ll see a decline in aggregates in Q1 2020. Between November 2018 and November 2019, loans to the private sector grew by 10%, showing that economic activity remains relatively robust.
After the rapid peso devaluation in September, the exchange rate has stabilized. At the end of November, the exchange rate reached DOP 52.8 per dollar, only DOP 0.02 above that of October 31st.
Congress easily approved the amendment to the 2019 budget. The deficit cap was increased to the equivalent of 2.2% of GDP, up 0.5 ppts of GDP. Congress also easily passed the general budget bill for 2020. Figures relative to GDP of the 2020 budget law are similar to those in previous budgets. The approval of both laws without major setbacks was surprising, and showed that, despite its division, most PLD members of Congress remained loyal to the party, and so the PLD retained the simple congressional majority.
Politics are now clearly in election mode, with municipal elections set for February 16th, and presidential and congressional elections for May. The PLD strategy is to win the February municipal elections in order to gain desperately needed momentum for the May elections, while the PRM is putting all its ammo toward the presidential race, and hopes the push will have a relevant effect on both the municipal and congressional elections. It is foreseeable that the PLD would win in most of the municipalities, and that the opposition would also increase the number of municipalities under its control, including some major urban areas.
Recent polls indicate that Luis Abinader for the PRM and his allies maintain a significant advantage over Gonzalo Castillo (PLD and allies), and Leonel Fernández (LFP and allies). The court has yet to rule on whether Fernández’s candidacy is legal. Abinader is polling above 45%, and his at opponents just above 20% each.
Abinader and his team have announced their economic policy priorities as a) restructuring public expenditure and strengthening fiscal institutions; b) containing the fiscal deficit and reverting the debt dynamics; and c) strengthening social policy. The other candidates have yet to show their cards.
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