Dominican Republic: Economic activity growth falls to one-year low in February
Economic activity expanded 5.8% in year-on-year terms in February, which followed January’s 6.3% increase. The outturn marked the worst reading since February 2021.
The slowdown was due in part to a tougher base effect. Looking at the breakdown, reduced year-on-year growth was driven by weaker activity in the mining sector. Growth in the agricultural, manufacturing and construction sectors improved, while the services sector was broadly stable.
Meanwhile, annual average economic activity growth rose to 13.4% in February (January: +13.0%), pointing to an improving trend.
The slowdown in growth in January and February from the double-digit growth figures seen last year is in part due to a toughening base effect and thus does not reflect any marked slowdown in underlying activity. Indeed, after contracting in January due to an Omicron-induced spike in Covid-19 cases, economic growth in month-on-month seasonally-adjusted terms was higher in February than in most months last year. That said, rising price pressures and higher interest rates amid spiraling oil prices are likely to dent momentum in the coming months.
On the outlook for 2022, analysts at EIU noted:
“In the near term, growth will be driven mainly by the reopening of the economy as the Covid-19 vaccine rollout nears completion. In turn, this will bolster consumer spending and support robust growth in infrastructure investment. Tourism exports will also rise as economic recovery brings a normalization in tourist arrivals. Growth in inflows of workers’ remittances will remain strong in the medium term, which will support private consumption.”
However, they still see some obstacles to growth emerging this year:
“Cyclical headwinds to growth will come mainly from the government’s tightening of fiscal policy in 2022 as the need to preserve macroeconomic stability precipitates the unwinding of post-pandemic stimulus measures. […] The government is likely to raise taxes in the medium term and cut public subsidies, which will dampen aggregate demand.”