Country Report Dominican Republic March 2009

Outlook for 2009-10

• Since winning a strong re-election mandate in May 2008, Mr Fernandez's position has weakened amid growing discontent over corruption and sharply deteriorating economic conditions, raising the prospect of rising social unrest.
• The PLD's legislative programme will focus on plans to stimulate the economy and crafting constitutional reform before mid-term elections in 2010.
• The administration’s ability to meet its macroeconomic and fiscal policy goals will be limited by a severe economic downturn and structural weaknesses in the government's accounts.
• A decline in fiscal revenue in 2009 will lead to an NFPS deficit of 3.6% of GDP before recovering slightly to a deficit of 2.9% in 2010, and public debt will rise.
• Real GDP will contract in 2009 by 1% as external conditions worsen and the sharp deceleration of domestic demand under way since mid-2008 intensifies; 2.3% growth in 2010 is a slow recovery.
• After dropping sharply in November and December to end 2008 at 4.5%, annual inflation will continue to fall in early 2009, but will end the year at 6.8% as the peso depreciates. Inflation will average 8.5% in 2010.
• Risks to our projection of a sharp weakening of the currency in the outlook period are weighted on the downside, given the magnitude of the Dominican Republic's external financing requirement and adverse global conditions.
• As import costs decline on the back of lower oil prices, but continue to outstrip export earnings, we forecast current-account deficits of 4.5% and 6.2% of GDP in 2009 and 2010, respectively.

Monthly review

• The main economic, social and political actors in the country gathered to discuss and prioritise different courses of action to confront the economic downturn as part of a national summit which began in late January.
• As part of the government's modernisation agenda the new US$700m metro in Santo Domingo was inaugurated on January 29th. Bids have already been received to build a railway connecting Santo Domingo and Santiago.
• On February 2nd the Central Bank reduced its benchmark interest rate from 8.5% to 7%, the second cut thus far in 2009.
• Unemployment is set to rise in 2009 after an estimated 190,000 job losses in 2008. So far this year more than 3,000 job cuts have been announced in the free-zone sector alone.
• The Central Bank reports that the number of tourist arrivals increased by just 1.5% in 2008, with the number of arrivals declining sharply in July-December.

Source: Country Report

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