Three glorious quarters

DOMINICAN REPUBLIC - Forecast 07 Nov 2018 by Pavel Isa and Fabricio Gomez

Economic activity grew 7.3% in Q3, from Q3 2017, and cumulative 2018 growth to September was 6.9%. These are extraordinary figures that surprised even the most optimistic observers. Inflation remained very low in September, up 0.08% from August, while accumulated January-September inflation was 1.52%, and y/y inflation 3.29%, below the 4% inflation target.

News on the external front is also relatively positive. Export dynamism offset the impact of the oil price rise. Exports January-September grew 10.6% from January-September 2017, to $8.27 billion. Domestic exports grew 9.9% and those from free zones by 11.2%. Tourism revenues reached $5.8 billion, remittances $4.87 billion, FDI $1.89 billion and exports of other services $1.25 billion. Hence, FX earnings in the current account reached $22.1 billion, and are expected to hit $30 billion by yearend.

The latest HI budget office report delivered no surprises. Spending has been relatively stable, though what is reported does not seem to reflect the totality of government commitments. The result is a very low budget deficit.

Consumption growth is expected to spike in Q4, due to Christmas bonuses and tourism. We project Q4 GDP at close to 5.9%. Liquidity will continue to be conditioned by compliance with the inflation target. This would imply performing monetary sterilization operations, although we expect them to be less intense than recently. The CAD will close higher than in 2017, and the exchange rate should creep up to DOP 51.30 per dollar.

The latest Gallup-Hoy poll shows that the outlook for the 2020 general elections is still undefined. The three most important political figures, the PLD’s President Danilo Medina and ex-president Leonel Fernandez, and PRM ex-presidential candidate Luis Abinader, are tied in voter preferences, with 14% each. Still, 22% think Fernández will be the next president, 19% that Medina will be and just 12% that Abinader will step into the leadership post. These results underscore that, despite the corruption scandals, the activism of the Green March and the erosion of the PLD, the opposition has been unable to increase its electoral power.

The poll also showed Medina's approval rating flat on March, at close to 48%, a plunge from the 80% of July 2015 and the 63% in February 2017. The Green March anti-corruption movement is extremely popular: 85% favored the demonstration, probably largest in the country’s history.

High fuel prices have begun to generate mobilizations, with various sectors demanding tax cuts and price transparency. Such pressures are likely to intensify in 2019, and to help fuel the rejection of the government and the PLD.

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