- Fitch Solutions expects real GDP growth of 6.9% in Panama in 2022, slowing to 4.4% in 2023. While the 2022 forecast is down modestly from 7.0% previously, due to slightly disappointing Q2 2022 data, Fitch maintains its view that copper mining and Panama Canal-related services will boost GDP, along with strong private consumption.
- However, going into 2023 growth is expected to slow moderately, as external demand for Panamanian services eases due to a global slowdown, and private consumption growth falls somewhat as base effects fade.
- Private consumption’s contribution to overall GDP will fall from 3.7 percentage points (pp) in 2022 to 2.1pp in 2023, mostly due to base effects. Despite this slowdown, the outlook for private consumption remains upbeat, with government food subsidies still in place and moderate inflation (at only 1.6% y-o-y in October), which will support household purchasing power.
- Net exports will also be a major driver of growth in 2023, contributing 0.4pp to the headline figure, from -0.4pp in 2022, as goods and services export remain strong and imports moderate. Service exports have driven headline growth in recent months, with the tourism sector rebounding almost to pre-COVID levels by mid-2022, while Panama Canal services have also been robust.
- Risks to growth are weighted to the downside. Panama experienced large-scale protests over the cost of living in the summer of 2022. Notably, the protests involved roadblocks and closures, disrupting commercial activity. As such Fitch sees a high risk of further protests in early 2023 if the government does not address remaining concerns about wages and food costs, which would impact output and potentially investor confidence.
- Another major risk is that the economic downturns in the US and other key tourism markets are more severe than Fitch anticipated. Similarly, goods exports – especially copper – depend heavily on demand from Mainland China, and could disappoint if China rebounds more slowly than expected.
(Source: Fitch Solutions)