The Martinelli administration recently announced that Panama’s Gross Domestic Product (GDP) grew by 2.4% in 2009 from 10.7% in 2008. Despite the huge decline, it is still an economic growth and, as such, it is commendable given the fact that it occurred in the midst of the infamous global economic downturn.
Economic activities linked to external demand plummeted, due to their connection to world markets, but economic activities linked to domestic demand grew, and helped to offset the GDP contraction during 2009. Economic sectors linked to external markets that contracted were agricultural and seafood exports, Colon Free Trade Zone exports, railway, container transshipment ports, Panama Canal, bunker sales to ships, air transport, travel agencies, banking and real estate. Economic activities linked to domestic demand that grew were electric power generation, retail, restaurants, domestic transportation, telecommunications, education, private health care and social services.
The agriculture and fishing value added contracted by 8.6% and 2.9% respectively, according to a report published by the General Comptroller of the Republic of Panama on its website , as a result of sharp contraction of U.S. and European Union export demand.
In the same report, the wholesale and retail value added contracted 3.7% , as a result of Colon Free Trade Zone value added contractiof 9.2%. Colon Free Trade Zone (CFTZ) was affected declining Venezuelan and Ecuadorian oil prices. Moreover, Ecuador imposed commercial restrictions against CFTZ imports to protect its foreign reserve.
Panama Canal, railway and air transport value added fell by 10.5%, 9%, 22.6% and 3.7% respectively. Nevertheless, the transportation, warehousing and communication sectors (which include the Panama Canal, Panama’s ports, railways and air transport) expanded by 8.3%, due tothe sudden and extraordinary growth of the telecommunications sector by 38.5%. This huge increase in telecommunications was due to the entry of two new competitor companies (Digicel and Claro) in Panama’s market, which expanded the cell phone supply and gave existing companies (Cable & Wireless and Movistar) a run for their money.
Banking value added fell by 2.2% in 2009, because the credit banks restricted credit and sacrificed profits to offset the global financial downturn. However, rest assured that bank profits were still positive. Panama’s National Banking System continues being one of the strongest in Latin America and better equipped to face the global financial downturn.
Demand sectors linked to external market is weak at the moment, however economist expect it to recover in 2010. However, the Ministry of Economy and Finance sees that Panama’s economy will grow by 5%.
A strong growth in 2011 and 2012 by 9.4% and 8.6% respectively is also expected, due to the recovery of the baby boomer real estate market , the Canal expansion, and the construction of Panama City’s Metro, to name a few private and public investments. This growth will shrink the unemployment rate down to 4.8% and 4.6 % in 2011 and 2012 respectively.
Throughout my years in Panama I learned to take all government based stats and forecasts with a grain of salt. However, it is evident that, in general, Panama’s economy was not affected as hard as others from the global crisis. It is also clear that all these private and public mega projects will (in theory) give Panama’s economy a huge boost for the next three years.
Only time will tell! I’ll be here to write about it which ever way things turn out to be.
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