Recovery consolidates, but with high inflation and a higher fiscal deficit
Economic recovery consolidated in May. The monthly index of economic activity reached a y/y growth rate of 21.2%, which makes it more likely that growth for the year will exceed 7%.
Greater dynamism has been accompanied by a persistent rise in prices that has placed interannual inflation at 10.48%, the highest since October 2008. Not only is headline inflation higher, but underlying inflation (5.82% interannual in May) is also the highest since August 2011.
The government has proposed to Congress an amendment to the Budget Law that increases the central government’s deficit to 1.3% of GDP, from the -2.94% originally projected to -4.26%, based on the official GDP projection for 2021 of DOP 4,936.9 billion.
Meanwhile, the third wave of COVID seems to be subsiding, but the threat of the Delta variant entering the country is still present. Faced with this situation, the government made the controversial decision to offer a third dose of vaccines to the population, only using this time a different brand than it used for the first two doses. Given the extension once more of the state of emergency, the pressure from sectors of the population to lift the mobility restrictions is increasing.
On the political level, the process of bringing to justice with accusations of corruption some former officials of the Danilo Medina government continues, now with the arrest of former Attorney General Jean Alain Rodriguez and other close associates. The situation becomes complicated due to expectations that due process be obeyed, and threats from the former attorney general himself to reveal information heretofore unknown to the public.
GDP projections for 2021 indicate expansion levels of around 8.7% (± 2.6%), significantly higher than expected at the beginning of the year. The recovery in 2021 and 2022 would be driven by the dynamism of domestic investment (double-digit growth) and the export rebound (with robust external demand, although it would remain 18.7% below 2019 levels). Private sector consumption would grow in the 4.8% -6.9% range. Public spending incorporates the new deficit, estimated by the government at -4.1% of GDP for 2021.
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