Panama: Economy cools further to over one-decade low in Q2
September 16, 2019
Economic growth weakened to 2.9% in annual terms in the second quarter, down from 3.1% in Q1 and marking the worst performance since Q4 2009.
The loss of momentum in the second quarter was largely due to a slowdown in the industrial sector (Q2: +2.1% year-on-year; Q1: +3.7% yoy). Weaker activity in the secondary sector was the result of a sharper contraction in manufacturing output in the quarter, while construction activity, which represents more than half of all industrial activity, slowed. On a brighter note, the primary sector returned to growth for the first time in a year (Q2: +0.8% yoy; Q1: -5.0% yoy), driven by a surge in agricultural production and despite a sustained downturn in the fishing sector.
Finally, turning to services, growth gathered pace in Q2, accelerating to 3.3% from 3.0% in Q1. The pick-up came on the back of stronger momentum in the all-important transport, warehousing and communications sector, which encompasses shipping activity from the Panama Canal. Moreover, growth in the retail and wholesale trade, which includes activity in the Colón Free Trade Zone, also increased, but was relatively subdued overall. On the other hand, hotel and restaurants, and financial services growth moderated in the quarter.
Looking ahead, momentum should gain speed in H2 on stronger domestic demand. Moreover, a ramp-up in mining operations at the Cobre Panama copper mine should support the external sector. That said, ongoing U.S.-China trade tensions are expected to continue to weigh on global trade and disrupt global supply chains, which could dampen toll revenue and cargo transit in the Panama Canal.
Author: Lindsey Ice, Economist