Panamanian GDP Growth to Slow, But Remain Robust by LatAm Standards

• Fitch Solutions maintains its forecast that Panamanian real GDP growth will slow from 10.8% in 2023 to 5.0% this year, but flags that downside risks to this projection are rising at the margin.
• The Q422 national accounts have yet to be released, though the February print of the monthly economic activity was released in mid-June. Growth remained robust at 9.0%, supported by the strength in construction linked to a ramp-up in public investment, ongoing recovery in the tourism industry and resilience in consumer-facing services.
• This helped to compensate for weakness in the mining sector linked to a since-resolved dispute between the government and the operators of the important Cobre Panamá copper mine which drove an 11.6% y-o-y decline in exports in Q123 in value terms.
• Furthermore, domestic demand should continue to drive growth this year, supported by loose fiscal policy ahead of next year’s elections and easing inflation.
• On the flip side, ongoing drought – which may be exacerbated by the El Niño weather phenomenon (a warming of the ocean surface, or above-average sea surface temperatures, in the central and eastern tropical Pacific Ocean.) – represents the single largest downside threat to Fitch’s forecast.
• The drought has already led to the introduction of some restrictions on the weight of ships that can pass through the canal, which accounts for roughly 20% of Panama’s service exports per the OECD (Organization for Economic Cooperation and Development). Ships move through the Panama Canal via a lock system, which uses water from several freshwater reservoirs to float the massive cargo vessels overland. Drought affects the water levels of these reservoirs and by extension ships traversing the key global trade route.
• Persistent drought could also create some energy challenges, given that hydroelectricity accounts for roughly 70% of the country’s electricity needs.

(Source: Fitch Solutions)