Panama Economic Forecast

GDP likely rose at a robust pace in Q1. Monthly output grew 7.7% year on year on average, faster than in Q4, amid healthy construction, trade and transportation activity. Annual tourist arrivals rose over 30% yoy. That said, inflation averaged higher than in Q4, while merchandise exports declined again on an annual basis. In Q2, our panel sees GDP growth higher than Q1’s projection. Economic activity rose faster in April–May than in Q1, and yoy price growth nearly flatlined in Q2, boding well for spending. Nevertheless, the ongoing drought hit Panama Canal activity. In response, authorities restricted shipping transit by nearly 10% in July—a measure prolonged until 2024 in September, as water in the canal reached historic lows toward the end of the rainy season. As a result, a vessel queue over 40% longer than the average formed in early September.

Consumer prices rebounded in July, rising 0.6% year on year (June: -0.6% yoy) amid a smaller drop in transport prices. Inflation should intensify in the remainder of 2023, but fuel subsidies, higher interest rates and the dollarization of the economy will keep a lid on prices. El Niño hitting agricultural output and fueling food costs poses a major upside risk.