Panama: Panama was fastest-growing economy in Central America in 2017, despite GDP growth decelerating in Q4
According to data released by the National Comptroller’s Office (Contraloría General de la República), the economy lost steam in the fourth quarter of 2017. Economic growth moderated from 5.4% year-on-year in Q3 to 4.9% in Q4. Despite expanding at the slowest pace since Q3 2016 in the fourth quarter, GDP growth for the full-year 2017 reached 5.4% (2016: 5.0%), making the country the fastest-growing in the Central American region for a second consecutive year.
Q4’s print reflected a moderation in growth in key sectors. Growth in construction declined from 10.5% year-on-year in Q3 to 6.5% in Q4, the slowest rise since Q3 2015. The hotels and restaurants sector plunged from a 3.4% annual increase in Q3 to a paltry 0.4% expansion in Q4, while expansion in financial intermediation decelerated modestly (Q4: +6.4% yoy; Q3: +7.1% yoy). Growth in transportation, warehousing and communications, which includes trade activity in the Panama Canal, ports, and airports, decelerated to 7.0% in the fourth quarter (Q3: +9.9% yoy). Meanwhile, retail and wholesale trade swung from a 0.3% contraction in Q3 to a 3.4% annual rise in Q4, driven by a recovery in trade in the Colón Free Trade Zone, the second largest free-trade zone in the world.
Despite slower growth in Q4, the country’s economic prospects remain bright. Trade-related sectors in 2017 recovered from 2016’s slump, in which domestic economic activity was dragged down by muted global trade. Full-year growth in transportation, warehousing and communication accelerated from a 2.5% expansion in 2016 to a sharp 10.1% increase in 2017. The double-digit increase also reflected for the first time full-year earnings from the expanded Panama Canal, which became operational in June 2016. The strengthening economic recovery in Latin America bodes well for the country’s trade-related sectors, which constitute over 60% of the economy. This, along with ambitious public spending by the government in 2018, should help ensure that Panama remains the fastest-growing economy in the Central American for a third consecutive year.