Country Report Panama December 2008

Outlook for 2009-10

• Politics in 2009 will centre on the presidential and legislative elections in May and the handover to a new government in September.
• Rising crime rates, party infighting and a growing sense of uncertainty over the future economy have damaged the chances of the centre-left Partido Revolucionario Democratico (PRD) of winning a historic second term in 2009.
• The fiscal accounts will undergo a sharp deterioration in 2009-10 as revenue is hit by slowing trade and GDP growth, but infrastructure spending and government transfers are set to increase strongly.
• The Economist Intelligence Unit has revised down its growth forecasts for 2009 and 2010, to 3.5% and 4.1%, from 4.9% and 6.1%, following a reassessment of the severity of the impact of deteriorating external conditions on Panama.
• After peaking at 10% in September 2008, we expect inflation to slow rapidly, ending 2009 at 3.9%, and further to 3.2% at end-2010 as a stronger dollar and falling oil and other commodity prices ease price pressures.
• The current-account deficit will narrow to around 8% of GDP in 2009 as slowing consumer demand and weaker oil prices provide some relief to the import bill, before rising to 8.9% in 2010 as Canal-related imports increase.

Monthly review

• The PRDs presidential candidate, Balbina Herrera, has sought to stem party infighting and bolster her chances in the 2009 election by choosing Juan Carlos Navarro as her vice-presidential running mate.
• For the second consecutive month polls have shown Ricardo Martinelli of the small Cambio Democratico (CD) ahead in the polls, opening a five-point lead according to a La Prensa-Unimer poll.
• The government secured passage of its 2009 budget through Congress in November, without difficulty and without modifications.
• Concerns over spending increases in the 2009 budget were thrown into sharper focus following the release of fiscal results for the first nine months of 2008 showing a deficit equivalent to 0.4% of officially forecast GDP.
• In November the government began negotiations with multilateral lenders with the aim of securing funds to channel to local banks facing restrictions on access to credit.
• The seizure in international capital markets and deepening global recession increase means that the construction sector will experience a sharp correction in 2009-10, or quite possibly a damaging bust.

Source: Country Report

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