Investment in Panama

Panama - Investment

Growth continues slowing to near decade-low in Q2, weighed on by construction strikes

According to data released by the National Comptroller’s Office (Contraloría General de la República), the economy continued to lose steam in the second quarter of 2018. Economic growth decelerated for the third consecutive quarter, from 4.2% year-on-year in Q1 to 3.1% in Q2, the weakest print since Q4 2009.

The slowdown was due to a sharp deceleration of activity in the industrial and agricultural sectors, while conversely the performance of the services sector improved compared to the first quarter. Annual growth in agricultural activities slowed from 7.5% in Q1 to 3.8% in Q2, mostly due to softer fishing output, which had surged in Q1. Livestock production registered solid growth, while conversely output of major crops such as rice shrank.

In the industrial sector, the biggest drag on growth came from the pivotal construction sector, which was paralyzed by a month-long strike in April–May that halted all ongoing projects. Industrial output growth fell from 3.9% in Q1 to a meek 0.3% in Q2, with the construction sector shrinking 1.2% year-on-year (Q1: +4.9% year-on-year). Meanwhile, growth in manufacturing activity accelerated to 2.2% yoy (Q1: +0.9% yoy), and electricity, gas and water supply grew 3.6% yoy (Q1: +3.1% yoy).

The main positive development in the second quarter came from the acceleration of activity in the services sector, which grew 4.8% yoy in Q2 (Q1: +3.4% yoy). Crucially, this improvement was in large part due to the transportation, warehousing and communications component—which includes trade activity in the all-important Panama Canal, as well as ports and airports— surging to +9.4% growth in the quarter (Q1: +5.2% yoy). Meanwhile, growth in wholesale and retail trade—which encompasses activity in the Colón Free Trade Zone, the second-largest free-trade zone in the world—was broadly steady at 3.9% in Q2 (Q1: +3.8% yoy).

Growth in the third quarter is expected to remain modest, as suggested by the very weak economic activity reading (IMAE) recorded in July, and headwinds facing the construction sector as several key projects near completion. Looking further ahead, the 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 4.8% in 2018. For 2019, the panel expects GDP to expand 5.2%, which is unchanged from last month’s forecast.