Panama: GDP contraction moderates in Q4, but economy still shrinks significantly in 2020 as a whole
March 1, 2021
According to a preliminary reading, GDP declined 10.9% year-on-year in the fourth quarter, softening notably from the 23.6% contraction seen in the third quarter. Q4's reading was the strongest since Q1 2020. That said, the print meant the economy contracted 17.9% in 2020 as a whole (2019: 3.0% yoy).
Looking at individual sectors, services activity fell at a more moderate rate of 9.4% year-on-year in the fourth quarter, which marked the best reading since Q1 2020 (Q3: -18.4% yoy). The improvement came as retail sales benefited from eased Covid-19 restrictions in the quarter. Moreover, the vital transportation, storage and communications subsector fell at a softer rate amid positive developments in Panama Canal activity. Meanwhile, industrial production dropped at a more moderate rate of 23.6% in Q4 (Q3: -45.3% yoy), benefiting from significant improvements in construction and manufacturing activity, as well as a large increase in mining output. Lastly, agricultural production growth accelerated to 4.4% in Q4 from 2.9% in the prior quarter, as the sector remained mostly unharmed by the pandemic’s fallout.
Moving forward to Q1 this year, economic activity should remain fairly downbeat as tighter restrictions were in force in the early part of the quarter, which will have hurt domestic momentum. However, the economy should return to growth from Q2 onwards.
On the outlook, analysts at EIU commented:
“Private consumption and investment will drive the recovery, but the scale and nature of the pandemic-induced recession will hamper growth prospects. Household incomes were hit hard by the standstill in economic activity. Furthermore, with economic activity set to remain depressed—partly owing to sectoral trends (tourism will only mount a weak recovery) and permanent damage to business balance sheets—consumption will not fully rebound in the forecast period. An acceleration of activities at the Cobre Panamá mine, following pandemic-induced disruptions (the mine is expected to produce over 330,000 tonnes of copper and more than 145,000 troy oz of gold per year by 2023), and a ramping-up of public works projects will help to boost investment.”
Author: Frederico Teixeira de Abreu, Junior Economist