Dominican Republic: Ample fiscal and monetary stimulus shores up GDP growth in Q4
March 29, 2018
A more comprehensive release of GDP data confirmed the economy’s solid performance in the last quarter of 2017, which benefited from increased government and Central Bank support, as well as a recovery in tourism inflows following hurricane-induced disruptions in September. Annual GDP growth was confirmed at 6.5%, a marked acceleration from the 3.1% expansions recorded in the two previous quarters and the highest increase since Q2 2016. That said, two weak quarters of growth meant GDP for the whole year decelerated to 4.6% from 6.6% in 2016.
Looking at a breakdown by expenditure, the fourth quarter saw improvements across the board over the previous quarter. Annual household spending growth accelerated to 4.6% in Q4 from 3.6% in Q3, with consumers benefiting from solid employment growth and healthy remittance inflows. Government spending growth also picked up, hitting a near two-year high of 10.4% in Q4 from 7.1% in Q3, reflecting the government’s loosened fiscal stance. In light of ongoing reconstruction efforts and increased public infrastructure support, fixed investment growth also accelerated, to 11.9% from 2.7% in Q3, marking the highest figure in a year and a half.
The external sector also performed well in the fourth quarter, with export growth rebounding from a third-quarter trough caused by Hurricanes Irma and Maria. Overseas shipments were up 6.4% in year-on-year terms, contrasting the 2.0% drop recorded in the previous quarter. Conversely, imports contracted for a third consecutive quarter in the fourth quarter, shrinking 1.5% (Q3: -6.4% year-on-year). All in all, a decrease in imports and a rebound in exports saw the external sector’s net contribution to overall growth improve from 1.5 percentage points in the third quarter to a 2.0 percentage-point contribution in the fourth quarter.
On an activity-based breakdown, GDP growth was propelled by much faster growth in the secondary and tertiary sectors. Growth in industrial activities was boosted by higher manufacturing output and a surge in construction-related activities, which expanded 18.5% in annual terms in the fourth quarter on the back of increased government support. The expansion was the strongest since Q2 2016 and followed a more moderate 6.1% increase in the third quarter. In the tertiary sector, tourism-related activities accounted for most of the quarter’s improvement, with activity in trade, hotels and transports all accelerating over the previous quarter.
Author: David Ampudia, Economist