Consumption in Panama

Panama - Consumption

Economic growth moderates in Q1, but underlying momentum remains strong

According to a preliminary reading, GDP growth slowed markedly to 13.6% year on year in the first quarter, from 16.3% in the fourth quarter of last year. Q1's reading marked the worst reading since Q1 2021. Nonetheless, this was mainly driven by a dwindling base effect, and strong underlying economic momentum persisted.

The services sector grew 15.0% annually in the first quarter, picking up from the fourth quarter's 13.8% increase, amid lower Covid-19 restrictions. As such, contact-intensive subsectors such as hotels and restaurants as well as retail grew at the quickest pace. Meanwhile, the industrial sector lost steam, growing 13.2% in Q1 (Q4: +32.4% yoy), mainly caused by markedly lower growth in mining production and more subdued growth in manufacturing output and construction. Finally, agricultural sector growth moderated to 2.7% in Q1, from 6.9% in the prior quarter.

Turning to Q2 of this year, available data suggests slowing economic activity amid relatively elevated inflation and a more adverse external environment. That said, a recovery in tourist arrivals should have supported growth.

On the outlook, analysts at the EIU stated:

“Panama will face some headwinds later this year. The Russia-Ukraine war has set the stage for higher inflation and lower growth in the global economy, which will dampen local growth prospects. […] Furthermore, the US has redirected some of its liquefied natural gas exports from Asia to Europe because of shortages caused by reduced Russian supplies, which will in turn hit Panama Canal usage. Much will also depend on the recent slowdown of Chinese exports and economic growth caused by that country's zero-covid policy and the resulting lockdowns”.

FocusEconomics Consensus Forecast panelists foresee the economy expanding 7.1% in 2022, which is up 0.1 percentage points from last month’s forecast. For 2023, the economy is seen growing 5.0%.