Slowdown In Private Consumption, Exports To Weigh On Dominican Republic's Growth In 2023

• Fitch expects that the Dominican Republic will see real GDP growth ease from an estimated 5.0% in 2022 to 4.2% in 2023. Consequently, the agency revised its 2022 estimate from 4.6% previously, as Q3 GDP data showed accelerating private consumption (4.8% y-o-y) and investment (6.5%) growth, despite headwinds posed by elevated inflation and interest rates.
• This underpinned 5.0% headline growth in the quarter and 5.4% in the year through Q322. Moreover, the economic activity index showed growth remained strong, slowing only slightly in Q4 2022.
• For 2023, Fitch maintained its forecast for 4.2% growth, as slowing growth in the US will pose several headwinds for DR’s economy. The country is also expected to underperform its 2015-2019 average growth rate of 6.1% for the second consecutive year.
• Fixed investment will remain largely stable at a 1.5pp contribution to headline growth in 2023, from 1.6pp in 2022. Banco Central de la República Dominicana (BCRD) will keep interest rates high at 8.50% through H1 2023, and only modestly lower rates to 6.75% by end-2023, despite Fitch’s expectation that rates will remain in restrictive territory.
• Stickier-than-expected inflation and the threat of natural disasters continue to pose downside risks to the growth forecast. While headline inflation moderated from a peak of 9.6% y-o-y in April to 7.8% by end-2022, it is still far above the BCRD’s target of 4.0%. If food or fuel prices prove stickier than Fitch’s current forecast of 6.5% average inflation in 2023 due to supply shocks from the Russia-Ukraine conflict or demand-side shock from China, it could drive a further reduction in private consumption in 2023, depressing headline growth.

(Source: Fitch Solutions)