Panama: Country closes challenging year with slowest growth rate since 2009
March 2, 2017
The Panamanian economy continued to lose steam towards the end of 2016. In Q4, the economy grew 4.5% annually, the slowest rate since Q1 2014 and far below the 5.3% observed in the same quarter of the previous year (Q3 2016: 4.7% year-on-year). In annual terms, economic growth slowed to 4.9%, marking the slowest rate since 2009. The deceleration underscores the many challenges the country faces as the economy has been beset by weakening international trade and depressed Panama Canal earnings in spite of the opening of an additional set of locks. This notwithstanding, Panama is actually one of the few bright spots in the region. Annual growth vastly exceeded the regional average, with the economy likely growing at the second fastest pace last year.
Data released by the National Comptroller’s Office (Contraloría General de la República) showed that Q4’s slowdown was driven by softer growth in the country’s service sector and a sharp contraction in the agricultural sector. Growth in the service sector, which constitutes almost 75% of the country’s economy, slowed to 3.7% (Q3: +4.2% yoy). The deceleration reflects slower growth in wholesale trade, hotels and restaurants, and financial intermediation and underscores the challenging external scenario of 2016 and its negative spillovers on the economy. The agricultural sector logged its fourth consecutive quarterly decline and dropped 3.2% annually. The only positive news came from the manufacturing sector, where growth accelerated markedly. The strong reading came on the back of increased construction activity and mining and quarrying.
The economy is not expected to reach the double-digit growth rates seen at the start of the decade when construction of the expanded Panama Canal was in full steam. Nevertheless, the economy is expected to remain healthy and remain near the top of the list of the fastest-growing economies in the region. The region is slowly turning a corner and the first signs of a slow recovery are beginning to emerge. This bodes well for the country’s logistical sector and trade-related activities. Ongoing large-scale infrastructure projects should spearhead growth in the domestic economy and keep it on a steady growth path for the next few years. Likewise, this will act as a buffer against prospects of a slower-than-expected recovery in global trade and in the region and will help keep the economy afloat.