Robust Canal Services, Mining And Construction To Support Panamanian Growth In 2023

• Panamanian real GDP growth is expected to slow to 4.2% in 2023 after an estimated 7.0% expansion in 2022. While growth will hold up in the country in the early part of the year due to strong demand for canal-related services and a booming construction sector, these tailwinds will begin to fade later this year as global economic activity continues to cool. Growth will also be lower in 2023 due to less favourable base effects, a weakening outlook for the tourism sector, and possible disruptions in the copper industry.
• Private consumption’s contribution to overall GDP is anticipated to be 2.3 percentage points (pp) in 2023, down from 3.8pp in 2022. Still, it is expected that private consumption will remain upbeat as Panama is a dollarized economy, which, combined with government subsidies on vital goods, has helped inflation remain low relative to other economies in the region.
• Importantly, according to the World Tourism Council, arrivals to Panama fell in Q3 2022 compared to the same period in 2019, the first quarterly decrease since the start of the pandemic. However, Fitch still expects services related to the Panama Canal to remain robust. 
• Risks to growth are weighted to the downside. Panama’s dispute with First Quantum Minerals is bound to impact exports, but if the dispute is not resolved soon, production and exports will be severely hampered for a much longer period.
• Additionally, the Agency remains concerned that a downturn in the US and other key tourism markets that is more severe than currently forecasted will adversely affect growth in H2 2023, lowering service exports further and also weighing on employment and private consumption.

(Source: Fitch Solutions)