Panama GDP Q1 2016


Panama: Economy grows at the slowest pace in two years in the first quarter

June 24, 2016

The Panamanian economy expanded 4.6% in Q1 over the same quarter of last year. The reading marks a clear deceleration from the 5.3% print tallied in Q4 2015 and the softest expansion in two years.

Data released by the National Comptroller’s Office (Contraloría General de la República) showed that a softer expansion in the industrial sector coupled with a contraction in the agriculture sector were the main drivers behind Q1’s deceleration. Growth in the industrial sector decelerated from a 30.6% expansion in Q4 to an 18.3% rise in Q1. The reading came on the back of slower growth in manufacturing industries and the electricity, gas and water supply components. The agricultural sector, on the other hand, swung from an 8.0% expansion in the fourth quarter of last year to a stark 4.3% contraction in the first quarter of this year. The all-important service sector, generally the main driver of growth in Panama, contracted for a second consecutive quarter, albeit at a softer pace (Q1: -2.6% year-on-year, Q4: -4.6% yoy). The contraction was underpinned by sharp falls in transportation, warehousing and communications, wholesale and retail trade, as well as financial intermediation, all of which more than offset a robust expansion in construction. The reading reflects the external economic headwinds the Panamanian economy is facing. Depressed economic activity in the Colón Free Trade Zone and sluggish international trade have weighed on the economy. However, construction of large-scale infrastructure projects, such as the expansion of the Panama Canal, which opened on 26 June, has shielded the economy and kept it on a healthy growth path.

The Panamanian economy is expected to keep growing at a steady pace. The government sees that GDP will grow at an average pace of 5% for the next 10 years and that fiscal transfers from the Panama Canal will increase 45% in 2017. The increased economic activity is expected to generate between 150,000–200,000 jobs in the next 10 years. Furthermore, investment in and construction on new large-scale infrastructure projects to accommodate increased Canal demand are currently underway. The government agreed with a Chinese consortium to build a USD 900 million container port on the Atlantic coast of the country and a bill to build another container port on the Pacific coast is currently under discussion in the National Assembly.

FocusEconomics Consensus Forecast panelists project that the economy will grow 5.8% in 2016, which is down 0.1 percentage points from last month’s forecast. For 2017, the panel expects GDP to also expand 6.0%.

Author: Jean-Philippe Pourcelot, Economist

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Panama GDP Chart

Panama GDP Q116 1

Note: Year-on-year changes of GDP in %.
Source: National Comptroller’s Office and FocusEconomics Consensus Forecast

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