Dominican Republic: Economic growth to recover in H2 following a bleak Q2 performance
September 30, 2017
A second data release confirmed that the economy’s performance in the second quarter was lackluster, with economic momentum shifting into a lower gear on a slump in fixed investment growth. Comprehensive data from the Central Bank showed GDP growth at 2.7% annually in the second quarter , which followed a first-quarter expansion of 5.3% and marked the weakest growth rate since Q1 2013.
The domestic sector accounted for most of the weakness observed in Q2, although trends were divergent across sub-components. Fixed investment contracted 10.8% in annual terms in the second quarter (Q1: -0.1% year-on-year) as investment projects were scaled back in several sectors of the economy, most notably in the construction sector. Fiscal data for Q2 also shows that public fixed investment took a hit as authorities forged ahead with fiscal consolidation. Conversely, private consumption growth accelerated for a second consecutive quarter as households continued to benefit from soaring remittance inflows and a shrinking unemployment rate. Household consumption grew 3.9% in Q2, which was slightly above Q1’s 3.7% increase. Government consumption also pulled its weight in Q2, accelerating markedly to 5.6%, following a 2.0% increase in Q1.
The external sector performed better in the second quarter, with the tourism sector likely spearheading services exports through the period. Exports accelerated from 6.6% year-on-year growth in the first quarter to an 8.5% increase in the second quarter, the second-best reading in over three years. Conversely, imports contracted 2.2% in Q2 after nearly stagnating at a 0.1% expansion in Q1. All in all, the external sector’s net contribution to growth was 2.7 percentage points in Q2, a marked improvement over the 1.7 percentage point contribution recorded in Q1.
The economy is expected to bounce back in the second half of the year despite recent disruptions to activity caused by Hurricanes Irma and Maria. The Central Bank eased monetary conditions in July and the government presented an additional budget for this year aimed at shoring up activity in the ailing construction sector, which should fuel a recovery in economic growth in H2.
Author: David Ampudia, Economist