Higher Inflation, Modest External Demand to Weaken Growth In Dom Rep

• Fitch Solutions revised its 2022 growth forecast for the Dominican Republic to 4.5%, from 4.8% previously, as the Russian invasion of Ukraine will spur inflation and weaken external demand; however, the economy is still expected to outperform regional peers. While real GDP rose 11.1% y-o-y in Q4 2021, the Russian invasion of Ukraine on February 24 will keep commodity prices elevated and disrupt global trade, limiting Dom Rep’s growth in the quarters ahead. 
• Consequently, private consumption growth will slow to 4.3% in 2022, down from 6.6% in 2021, as rising prices limit purchasing power. From 2017 to 2021, private consumption accounted for 68.3% of GDP on average and was a major catalyst of the economic rebound in 2021. The Russian invasion of Ukraine will weaken global growth, constraining external demand for Dom Rep’s goods and services exports over the coming quarters. 
• While total investment is expected to increase by 5.2% in 2022, this is a significant reduction from the 22.1% expansion recorded in 2021. This will be due to higher borrowing costs and greater risk aversion among global investors.  
• The Banco Central De La República Dominicana (BCRD) began a rate hiking cycle in Q4 2021 and has since raised rates by 200 basis points, to the current policy rate of 5.00%. Fitch forecasts that the BCRD will increase its policy interest rate to 7.00% by end-2022 which, coupled with its more hawkish outlook for the US Federal Reserve, will lift borrowing costs and weaken business investment in the Dominican Republic.

 (Source: Fitch Solutions)