Dominican Republic: Economic growth speeds up in Q2
August 1, 2018
According to a preliminary estimate released by the Central Bank on 1 August, the economy expanded 7.1% in Q2 in annual terms, up from Q1’s 6.4% increase. The economy resoundingly shook off the lull experienced in the middle of last year, as it continued to benefit from the Central Bank’s more expansive monetary stance adopted since August 2017, which has boosted credit growth and seen lending rates fall. The second quarter’s growth figure was likely the fastest in the Central America and the Caribbean region by some distance.
Looking at a breakdown by production, Q2’s performance was broad-based, with the key drivers unchanged from Q1. Manufacturing in duty-free zones was a key contributor to growth, chalking up a 13.7% expansion and likely aided by stronger exports to the U.S. The construction sector also played an important role, recording 14.7% growth. The sector’s performance was underpinned by projects in the tourism, energy and commercial sectors, as well as by private housing developments in the capital city in response to a housing shortage. The commerce sector expanded 8.7%, aided by buoyant credit growth and a stronger labor market.
Looking ahead, growth is expected to ease from Q2’s elevated print and moderate towards potential, but will remain strong compared to regional peers. Private consumption should be supported by solid employment growth, while fixed investment should continue to benefit from the performance of the construction sector. However, the external sector’s contribution to the economy will likely diminish—despite solid export growth—as higher international oil prices and stronger domestic demand boost imports. In addition, possible further interest rate hikes by the Central Bank in the near term will raise borrowing costs and weigh on economic activity.