Country Report Panama May 2009

Outlook for 2009-10

• A new president, pro-business conservative, Ricardo Martinelli, founder and leader of the Cambio Democratico (CD) party, will take office on July 1st 2009 following a landslide victory in the May 3rd election.
• Mr Martinellis hand will be strengthened by the legislative majority in the National Assembly won by his Alianza por el Cambio, an alliance of his own CD, the Partido Panamenista and two smaller parties.
• Despite a record margin of victory, the incoming president's ability to move ahead with his reform agenda will be tempered by economic downturn.
• The fiscal accounts will undergo a sharp deterioration in 2009 as government income is hit by falling trade and a contraction in GDP, with little improvement in 2010 as sluggish growth continues to hold back revenue.
• Recession in the US and regional markets, falling world trade and financial market stresses will result in Panamas economy contracting by 1.3% in 2009 and staging only a mild recovery in 2010, growing by 1.4%.
• After ending 2008 at 6.8%, inflation will slow sharply in 2009, ending the year at 2.1% as oil and other commodity prices ease, rising to 2.7% at end-2010 as demand and commodity prices stage a modest recovery.
• With consumer demand and commodity prices falling, the current-account deficit will narrow to 7.3% of GDP in 2009, before rising to 8.7% in 2010 as Canal-related capital imports increase.

Monthly review

• On May 3rd Mr Martinelli defeated the incumbent Partido Revolucionario Democratico's (PRD) candidate, Balbina Herrera, by the largest margin in any election since the return to civilian government in 1989.
• Mr Martinellis alliance won a firm majority in the National Assembly, the unicameral legislature, helped by bringing the Partido Panamenista within his alliance fold in the run-up to the election.
• The president-elects economic team have stated that maintaining positive economic growth amid the global economic recession will be the focus of the incoming administrations economic policy.
• After the authorities slashed their growth forecast for 2009 in March to "no less than 3%?, the latest data show that economic activity slowed to 2.9% in February, its lowest since January 2005.
• The construction sector is experiencing a precipitous fall in demand for new residential property at a time of growing over-supply, according to a recent survey commissioned by a Panamanian mortgage broker.

Source: Country Report