Country Report Panama January 2009

Outlook for 2009-10

• Politics in 2009-10 will be dominated by the presidential and legislative elections in May 2009 and the process of transition under a new government fromJuly.
• Rising crime rates, party infighting and a growing sense of uncertainty over the economy appear to have all but ended the chances of the ruling Partido Revolucionario Democratico (PRD) winning a historic second term in 2009.
• A victory, as seems likely, by Ricardo Martinelli of the small Cambio Democratico (CD) party, would mark a break from 20 years of two-party rule, but the CD's lack of a majority would increase the risk of legislative deadlock.
• 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 continue to increase sharply.
• The Economist Intelligence Unit expects that, given the severity of the impact of deteriorating external conditions on Panama, GDP growth will more than halve to 3.5% in 2009, recovering only marginally to 4.1% in 2010.
• After ending 2008 at an estimated 7.3%, inflation will slow sharply in 2009, ending the year at 3.9%, and further to 3.2% as moderating domestic demand and sharply lower oil and other commodity prices ease price pressures.
• With consumer demand moderating and commodity prices falling, the current-account deficit will narrow to around 5.9% of GDP in 2009, before rising to 7.7% in 2010 as Canal-related capital imports increase.

Monthly review

• With campaigning officially beginning in January, polls show Mr Martinelli up to 18 points ahead of Ms Herrera, who has struggled to overcome PRD disunity over her candidacy and public disaffection with the government.
• The coming into force of a new fiscal responsibility law at the beginning of January will leave the current and incoming governments struggling to meet stringent new fiscal criteria at a time of slowing economic growth.
• The government has faced criticism for its failure to define plans for a contingency credit fund for banks, despite the importance of putting such a scheme in place having been stressed since October 2008.
• Despite a strong third-quarter 2008 growth performance, the three pillars of economic activity in recent years, banking, construction and transportation, all exhibited varying degrees of weakness.

Source: Country Report

This report covers the following industry codes:
SIC Code: 47;15
NAICS Code: 48;23