Inflationary pressures and political tensions accompany stronger economic growth
The Dominican economy performed considerably better in H1 2026 than expected at the beginning of Q2, despite heightened geopolitical uncertainty following the escalation of the U.S.–Iran conflict. Economic activity accelerated to 4.7% and 6.4% y/y in May and June, lifting H1 growth to 4.5%, driven mainly by mining, construction and free-zone activity. But this strong performance was accompanied by rising inflation, which remained above the Central Bank's target range for the third consecutive month.
The external sector remained resilient. Higher exports, particularly of gold, together with robust tourism, remittances and foreign direct investment largely offset the wider trade deficit, driven by stronger imports. Sustained foreign exchange inflows contributed to a 6.9% appreciation of the peso between December 2025 and June 2026.
The macroeconomic outlook has improved since April. Real GDP growth is now projected at 4.5% (up from 3.6%), while inflation is expected to moderate in H2, and the external sector is likely to remain resilient. Yet downside risks remain significant. Oil prices could rise if geopolitical tensions intensify; tighter global financial conditions may constrain domestic policy; and the new U.S. tariff regime could reduce the competitiveness of Dominican exports. Preserving macroeconomic stability will therefore require prudent monetary policy, continued fiscal discipline and progress on structural reforms.
While macroeconomic conditions remained broadly favorable, the political environment grew increasingly tense between late June and mid-July. Public dissatisfaction over tax increases introduced under the anti-crisis plan, rising inflation, the return of electricity outages, a high-profile case of police violence and the imminent implementation of a controversial new criminal code triggered widespread protests in greater Santo Domingo. In response, the government and Congress moved rapidly to ease tensions by approving amendments to the criminal code and a supplementary budget, and by implementing Law 30-26. These developments highlighted both a more organized civil society, capable of mobilizing rapidly through social media, and a governing coalition under growing pressure to respond swiftly to rising social demands.
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