Investment in Panama

Panama - Investment

Growth picks up from near decade-low in Q3, but remains hampered by feeble construction sector

According to data released by the National Comptroller’s Office (Contraloría General de la República), the economy regained some steam in the third quarter of 2018 after posting its worst performance in nearly a decade in Q2, but nevertheless remained subdued. Economic growth accelerated from 3.1% year-on-year in Q2 to 3.6% in Q3, following three consecutive quarters of decelerating growth.

The uptick in economic momentum came on the back of quicker growth in the industrial (Q3: +1.8% year-on-year, Q2: +0.3% yoy) and service (Q3: +5.4% yoy, Q2: +4.8% yoy) sectors while, conversely, output in the agricultural sector declined 0.3% (Q2: +3.8% yoy) due mainly to a drop in fishing activity.

Industrial activity notably benefitted from a recovery in the construction sector in the quarter, which had shrunk in Q2 due to a month-long wage strike in April–May. Nevertheless, the construction sector’s performance in Q3 remained much weaker than its long-term average, while growth in manufacturing; and water, gas and electricity supply also slowed from Q2’s modest readings.

On the other hand, the service sector posted its best performance since Q1 2017, buoyed by strong growth in transport, warehousing and communications—a category that encompasses activity in the crucial Panama Canal, as well as ports and airports. Robust shipping and freight activity also supported a marked acceleration of growth in the wholesale and retail trade sectors, which include activity in the Colón Free Trade Zone—the second-largest free-trade zone in the world, located next to the Panama Canal.

Growth in the fourth quarter appears poised to remain subdued by historical standards, as suggested by the weak economic activity reading (IMAE) logged in October, although the construction sector will likely continue its recovery. Looking further ahead, an escalation of the trade war between the U.S. and China could heavily impact Panama’s trade-related sectors as it would likely affect global shipping volumes.

FocusEconomics Consensus Forecast panelists project that the economy will grow 5.0% in 2019, which is down 0.1 percentage points from last month’s forecast. For 2019, the panel expects GDP to expand 4.9%.