Dominican Republic: Growth hits speed bump, slows to four-year low in Q2
August 31, 2017
In Q2, the economy struggled to keep up with the performance seen in recent years. According to preliminary data from the Central Bank, GDP growth decelerated from Q1’s solid 5.3% expansion to 2.8% in Q2, marking the weakest reading in four years and showcasing the effects of slightly higher average oil prices and a tighter monetary policy.
In its flash release, the Central Bank provided Q2 data for GDP growth, while for the breakdown of GDP by sector it only provided H1 data in a year-on-year comparison. According to the Central Bank, the economy expanded 4.0% in the first half of this year, a marked deceleration from the 7.4% increase seen in the same period last year. Looking at the details, private fixed investment growth likely decelerated in the first half of the year, which weighed on construction growth in particular (H1 2017: -2.7% year-on-year; H1 2016: +16.8% yoy). Public fixed investment growth also seems to have performed poorly in H1, dragged down by the government’s measures aimed at reigning in the country’s fiscal deficit. Other sectors that performed more weakly in H1 2017 than in H1 2016 included real estate, mining and retail trade.
Conversely, growth seems to have held up better in other sub-components of GDP. Growth in hotel, bar and restaurant activities accelerated from 5.0% in H1 2016 to 7.8% in H1 2017, a nod to the sector’s success in its efforts to increase room availability and the supply of tourism services. Tourist arrivals were up 7.7% in annual terms in H1, while average tourist spending grew 2.2% in the same period. In addition, growth in manufacturing in free economic zones accelerated as a result of the strength of global trade, while financial services growth was resilient at an 8.1% expansion in H1 (H1 2016: +11.2% yoy).
The country’s performance in the first half of the year surprised to the downside, as FocusEconomics panelists had on average expected resilient growth of 5.2% in H1. Nonetheless, the Central Bank’s more accommodative policy stance, healthy disposable income growth and solid performances in key sectors suggest that growth should recover in H2 following Q2’s sharp slowdown.
Author: David Ampudia, Economist