Dominican Republic: Hurricanes take a toll on the economy in Q3
January 5, 2018
Comprehensive data from the Central Bank showed the economic recovery was knocked off course in the third quarter on the back of disruptions caused by Hurricanes Irma and María in September. However, these were offset by improving dynamics in the domestic economy, reflective of a loosened fiscal stance and the Central Bank’s policy decisions aimed at boosting credit growth. GDP rose 3.0% annually in the third quarter, which mirrored the figure recorded in the second quarter and marked the joint-lowest log since Q1 2013.
In the domestic sector, private consumption growth decelerated slightly to an over two-year low of 3.2% in Q3 from 3.4% in the previous quarter. Proxy data for consumption showed that household spending was particularly weak at the start of the quarter, but firmed up as the Central Bank eased monetary conditions in late July and the government turned more supportive of growth. Public consumption was up a solid 7.5% from the previous year in Q3, the highest figure since Q1 2015 and above the 6.9% expansion recorded in Q2. Meanwhile, fixed capital expenditure swung from an 8.7% plunge in Q2 to a 1.5% expansion in Q3. This reflected stronger capital outlays across multiple industries, although some—including the import-intensive construction sector—experienced severe hurricane-related disruptions in September.
The external sector had a strong performance in the third quarter, with exports recording a resilient 3.5% increase despite the effect of the Hurricanes. These were particularly acute in the northeastern part of the country, a major tourist hub—tourism is one of the key export-oriented sectors of the economy and a crucial source of foreign currency. Meanwhile, imports recorded a 5.4% decline on an annual basis in Q3, nearly double the 2.9% decrease recorded in Q2 and the largest contraction since Q1 2013. All told, the external sector’s net contribution to growth was 2.5 percentage points in Q3, only marginally below the 2.6 percentage-point contribution recorded in the previous quarter.
Leading data suggests economic momentum continued to build throughout the fourth quarter after bottoming mid-way through the third quarter. On the back of an improving labor market, cheap credit, robust remittance inflows and strong global growth, the economy is expected to grow at a robust clip in 2018.
Author: David Ampudia, Economist