Slowdown In US Growth To Widen The Dominican Republic's Current Account Deficit In 2023

  • Fitch Solutions forecasts that the Dominican Republic’s current account deficit will widen to 4.1% of GDP in 2022, down from its previous forecast of 4.4%, as tourism arrivals and spending are surprised to the upside. Throughout the year to August, total foreign tourist arrivals have grown a robust 66.9% y-o-y, with stronger-than-expected inflows of French and Spanish tourists underlying this trend.
  • However, economic slowdowns in key source markets, particularly the US, will slow tourism growth, goods exports, and remittances inflows, further widening the current account deficit to 4.3% of GDP in 2023.
  • Inflationary pressures and tightening financial conditions will cause US growth to slow from 1.8% in 2022 to 0.3% in 2023. Furthermore, given that the US imported 55.3% of all Dominican goods in 2021, dominated by consumer electronics, tobacco products, and medical devices, easing demand from the US will cause Dominican goods export growth to slow to 3.4% next year.
  • That said, import growth will also decelerate next year, to 3.0%, as prices for raw materials and gasoline moderate, limiting the growth of the goods trade deficit. Similarly, service export growth will ease to 1.9% in 2023, primarily due to weakening tourism demand from the US, Canada, and the Eurozone markets as global growth slows.
  • After solid growth in 2020 and 2021, Fitch expects the contraction in remittances in 2022 will continue in 2023, underpinning a 0.9% decline in the secondary income account surplus to USD9.6Bn, from USD9.7Bn this year.
  • If the US economy continues to experience persistent inflationary pressures, the US Federal Reserve may decide further tighten the interest rates beyond the current expectations of 4.50% by end-2022. This would likely cause a further weakening of growth in 2023, which would in turn weigh more heavily on Dominican export growth and remittance inflows than currently expected, resulting in a wider current account deficit.

(Source: Fitch Solutions)