Country Report Dominican Republic July 2009

Outlook for 2009-10

• The government of the president, Leonel? Fernandez, will face growing popular discontent during the outlook period, as a severe economic downturn, alleged corruption and power outages fuel public anger.
• We expect legislation to be centred on the economy, although the political focus will soon turn to campaigning for legislative elections set for May 2010.
• Recent data suggest that the global economy is stabilising; however, growth over the next two years will be marked by a high degree of volatility. A weak US economy will dampen growth prospects for the Dominican Republic.
• Tight financing conditions will mean government spending cuts in 2009, reducing the central government deficit to 2% of GDP, but lifting public debt to 42.7% of GDP. The deficit will remain at 2% of GDP in 2010.
• We expect the weakening of real GDP to continue, but forecast a recovery toward the end of 2009, which will lead to a GDP contraction of 2% (previously 2.5%). Recovery will be slow as GDP grows by just 2% in 2010.
• Annual inflation will continue to fall through most of 2009, turning negative for a few months, but will end the year at 5.6% owing to peso depreciation and higher oil prices. We expect inflation to average 7.3% in 2010.
• We expect an adjustment in the currency, given the magnitude of the external financing requirement, and anticipate a real depreciation of 3.6% in 2009 followed by a slight further depreciation in 2010.
• Weak export earnings and remittances inflows will lead to a current-account deficit of 5.5% of GDP in 2009, despite lower average import prices. This deficit will rise to 6.6% in 2010 as import costs increase.

Monthly review

• A May political pact between Mr Fernandez and Miguel Vargas Maldonado of the opposition PRD has pushed forward the constitutional reform process, although the backroom-style deal could weaken democratic institutions.
• The pact has catapulted Mr Vargas into the presidency of his party, even though party elections have yet to be convened.
• On May 28th the government announced the purchase of the private energy distributor, EdeEste, in order to resolve three separate legal disputes.
• Preliminary supply-side data published by the Central Bank reveal that the economy grew by 1% in the first quarter owing to heavy contractions in construction, mining and free zones.
• FDI reached US$636.8m in the first quarter, stronger than during the same period in 2007, but 40% less than during the first quarter of 2008.

Source: Country Report

This report covers the following industry codes:
SIC Code: 48;70;15;60
NAICS Code: 517;72;23;52