Country Report Panama August 2008

Outlook for 2008-09

• With national elections in May 2009 attention is increasingly focused on the potential successors to Martin Torrijos and his centre-left Partido Revolucionario Democratico (PRD) government.
• Despite growing public concerns about rising inflation and crime rates, and shortcomings in infrastructure and public services, the Economist Intelligence Unit expects the PRD to win a historic second term in 2009.
• The impact on global growth of a sharp deceleration in 2008-09 in the US will be directly felt by Panama in weakening demand for its all-important transport-oriented services exports.
• We have revised down our growth forecasts to 7.4% in 2008, from 8.6%, and to 6.4% in 2009, from 7.6%, given the effect in terms of falling domestic demand we expect to result from persistent inflationary pressures.
• With oil prices continuing to add to inflationary pressures in 2008 we now expect inflation to reach 10.6% at end-2008 (previously 9.6%) before slowing to 8.9% at end-2009 as commodity prices ease and domestic demand eases.
• With growth slowing and oil prices weighing on the external accounts, the current-account deficit will widen to 13% of GDP in 2008 and 13.3% in 2009.

Monthly review

• Mr Torrijos has made clear his intention to press ahead with introducing changes to the security services by presidential decree before September, despite growing opposition from civil rights organisations.
• Recent polls suggest that less than 1 percentage point separates the three leading candidates to win the presidency in 2009, the PRD's Balbina Herrera and opposition candidates, Ricardo Martinelli and Juan Carlos Varela.
• The government has welcomed recent fiscal data showing a better than expected revenue performance in the first half of 2008 as a basis for enabling it to continue with its programme of pro-cyclical fiscal spending.
• Monthly indicators show economic activity having slowed to 7.7% by May, from 1o% for most of 2007 amid signs of slowing international trade flows affecting Panama's transport services subsectors.
• The index of consumer confidence fell for the fourth consecutive month in June, to 88.6, below the 100-point baseline. The index is now 13.6 percentage points lower than in February.
• Net cargo transiting the Canal fell in all but one month between January and May. Year on year net tonnage was down 1.7% in the period and transits by large vessels 0.9%. Canal toll increases ensured revenue continued to rise.

Source: Country Report