Trump Possible Bad News for Canal, and Exports
The question every analyst asks these days is how the Trump administration might affect Panama. Though the link between the U.S. and Panamanian economies is one of the weakest in the region, a likely surge of protectionism will hit services exports, and Canal traffic.
Other potential impacts include remittances from abroad linked to immigration (legal or otherwise), which are not quantitatively important for Panama; and tourism, an important source of local demand comprising about 15% of total goods and services exports. Trade, of relatively minor importance, could also be affected: Panama’s Free Trade Agreement with the United States came into force in 2012, but its results have been meager.
A likely surge of protectionism will affect service-oriented exports, though, including Canal traffic, port movement and bunkering (comprising around 20% of Panama’s GDP). The main route through the Canal is the U.S. East coast route to Asia, with 31.8% of the total cargo transported by the Canal, while the U.S. is the main origin and destination of cargo (responsible for 67% of the long tons transported).
The Fed will likely increase the Federal funds rates soon, a move not induced by the Trump election. However, long term rates (the ones that have a greater effect on the cost of funds in Panama) might increase, due to the tax expenditure mix from the new administration. The expected hike in local interest rates, in addition to the new banking regulations following Basel III standards, will reduce credit growth.
The main conclusions of the new report of the Experts Committee on the Financial Sector (a second report, on the heels of the Joseph Stiglitz-Mark Pieth uproar) do not diverge substantially from the draft released in August, when Stiglitz and Pieth were involved. The recommendations point to the need to comply with multilateral regulations, as Panama’s corporate legislation lacks sufficient transparency.
The Panama Canal Authority (ACP) presented four short-term projects (the Corozal Terminal, the RORO terminal, the LNG terminal and a logistics park) and five additional future activities (bunkering, power generation, top-off operations, ship repair services and a pipeline). The ACP seeks to expand the Canal cluster from a transshipment hub to a value-added logistics hub, with an industrial complex in the surrounding area. The execution of these projects will have a positive impact in our projections beyond 2017.
For Q3, economic indicators continue to show a mixed picture but overall sluggish performance due to external forces. Trade indicators continue to show signs of deterioration as world trade remains in the doldrums.
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