Investment in Panama

Panama - Investment

Growth accelerates in Q4 despite weaker trade flows on pick-up in construction, finance and mining

According to data released by the National Comptroller’s Office, the economy continued to regain steam in the last quarter of 2018 after rebounding from Q2’s decade-low performance in Q3. Economic growth accelerated from 3.6% year-on-year in Q3 to 4.0% in Q4, which puts growth for the full-year 2018 at 3.7% (2017: +5.3% year-on-year).

The fourth quarter print was mainly underpinned by a stronger performance in construction, with growth also picking up noticeably in the financial services, as well as in the mining and quarrying sectors. Conversely, the sectors of transport, warehousing and communications, and wholesale and retail trade, fared relatively poorly due to a global growth slowdown weighing on international trade flows. These industries respectively encompass activity in the Panama Canal and the neighboring Colón Free Trade Zone, and are thus key growth drivers.

Looking at the details, the agricultural sector contracted 4.8% year-on-year in Q4 as fishing output fell by more than a quarter. Growth in industrial activity, meanwhile, accelerated from 1.8% in Q3 to 4.4% in Q4, buttressed by construction and mining despite a mild contraction in manufacturing. Construction was notably supported by the government’s infrastructure investment plan—set to ramp up further throughout 2019—with several major projects such as a metro line expansion underway in the quarter. Meanwhile, mining and quarrying activity was likely lifted by the Cobre Panama copper mine, the second largest investment project in the country’s history after the Panama Canal itself.

Lastly, growth in the service sector slowed significantly from 5.4% in Q3 to 3.3% in Q4, as softer trade and transport activity more than outweighed the pick-up in financial services growth. Looking ahead, the trend observed in Q4 is likely to carry into most of 2019, with growth set to recover further from the decade-low registered in Q2 2018. Construction should continue to power growth amid the public infrastructure push, while the Cobre Panama mine, which started processing ore on 14 February, will drastically increase mining output this year. On the flipside, slowing global growth will continue to weigh on the shipping- and trade-oriented sectors, although a potential warming of U.S.-China trade relations could significantly improve economic prospects for the year.

FocusEconomics Consensus Forecast panelists project that the economy will grow 5.0% in 2019, which is unchanged from last month’s forecast. For 2020, the panel expects GDP to expand 4.7%.