Panama: Growth falters in Q1 on softer construction, shipping and financial services growth
According to data released by the National Comptroller’s Office, the economy lost traction in the first quarter of 2019, interrupting a growth rebound that had started two quarters prior. Economic growth fell from 4.0% year-on-year in Q4 to just 3.1% in Q1, matching the decade-low reading logged in Q2 2018. This feeble growth print came primarily on the back of softer momentum in the country’s main growth engines: shipping, construction, and financial services.
Looking at the sectoral breakdown, the agricultural sector’s contraction worsened from 4.8% year-on-year in Q4 to 5.0% in Q1, as the fishing sector shrank by nearly 40% in annual terms. The industrial sector, meanwhile, lost steam (Q1: +3.7% yoy; Q4: +4.5%) primarily due to lower but still robust growth in construction, which represents more than half of all industrial activity. In addition, growth in mining and quarrying also slowed, while the manufacturing sector continued to contract slightly, at the same rate as in Q4. On the other hand, growth in the utilities sector picked up steam, thanks largely to a new natural gas plant coming online in the quarter.
Finally, turning to services, growth held up reasonably well, slowing from 3.3% in Q4 to 3.0% in Q1. The slowdown was in good part driven by lower momentum in the crucial transport, warehousing and communications sector, which encompasses shipping activity from the Panama Canal. Increased trade protectionism and weaker global growth likely weighed on the sector in the quarter, and also held down the equally important retail and wholesale trade sector, which includes activity in the Colón Free Trade Zone and grew at a similarly meek pace as in Q4. Moreover, the financial sector also lost steam in Q1. On the other hand, the print was supported by a pick-up in the real estate sector, as well as a clear rebound in the hospitality sector, after four consecutive quarters of contraction, indicating that inbound tourism regained some momentum.