We expect solid growth for 2019: Copper exports and private investment will be the engines

PANAMA - Forecast 01 Mar 2019 by Marco Fernandez and Alex Diamond

Our GDP growth rate estimate for 2018 (3.8%) was lower than the government´s and that of several international organizations (above 5% on average). The official figures for the complete year will be published during the first week of March, in addition to the balance of payments results.

The accumulated growth rate up to the third quarter in 2018 was 3.6% yoy. For the economy to reach at least 4.0% for the year, the fourth quarter must have grown at a pace of 5.0%, an unlikely feat according to partial data for Q4 production and consumption. Therefore, we stick to our estimate of 3.8%, especially because the sales and production data for December followed the pattern of previous months. Our projection for 2019 (5.0%) is also lower than that of the IMF, ECLAC and MEF (between 5.4% and 6.0%), based on our assumptions about the main components of aggregate demand.

A long-term analysis of growth prospects shows how important it is for the country to increase total factor productivity to reach the 5.5% potential. Our numbers are as follows: the labor force is growing at a 3% per year rate (with a 50% elasticity with respect to GDP), and the stock of capital will grow by 5%. The result is 4% growth per year in the absence of increasing factor productivity; therefore 1.5 percent annual percentage growth in TFP is required to reach potential. The IMF reaches a similar result with different elasticities.

But the message is clear: Productivity will be the key variable for sustainable growth, and this is inconsistent with more protection for the agricultural sector, which is a common proposal of all the presidential candidates. Logistics and tourism will be the source of future growth.

The first of two televised debates between the seven presidential candidates resulted in what most analysts expected: more form than substance. The three independent candidates (Lombana, Gómez and Ameglio) attacked the candidates of the three traditional parties; Roux (CD) and Blandón (Panameñista) attacked the front-runner, Cortizo of the PRD; Méndez of the leftist FAD attacked the neo-liberal model; and Cortizo, with a nonchalant attitude, bobbed and weaved through the punches of the other candidates (Cortizo is ahead in the polls by more than fifteen points).

In this report, we also briefly discuss the possible effects of a change in the status of the Venezuelan economic and political scenario.

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