Panama's economy grew 2.4% despite global economic turmoil

Jovany Morales - Panama Economy Insight March 29, 2010
Panama's government announced this month that Panama's GDP grew 2.4% in 2009. This growth came despite one of the worst global economic turmoil since the Great Depression of the thirties. Panama's economy was very strong before it happened bankruptcy of Lehman Brothers in the U.S., which sparked the global economic crisis, and managed to maintain some momentum in 2009.

Most of the foreign demand for Panama's economy slumped, given its relation to global markets, but domestic demand kept the momentum and helped to prevent the contraction of GDP.

The sectors related to foreign markets that suffered included the exports of agricultural and seafood, the Colon Free Zone, railways, ports, the Panama Canal, sales of bunker to vessels transiting the Canal, the liner shipping by air, the activities of travel agencies, banking and real estate activities. The sectors related to domestic market, which continued to grow were the supply of electricity, retail trade, restaurants, domestic transportation of passengers by road, telecommunications, private education, private health services and social services.

The value added of agriculture and fisheries contracted 8.6% and 2.9% in 2009 compared to the previous year, according to the GDP report issued by the Comptroller General of the Republic on its website on March 2, which is the result of the sharp drop in export demand in the United States and the European Economic Community.

The added value of trade, according to data presented in the report showed a contraction of 3.7% in 2009 as a result of a decrease of 9.2% of value added of the Colon Free Zone. The Colon Free Zone was hit by falling prices of oil from Venezuela and Ecuador, also due to the latter country adopted some measures against imports from the Free Zone in order to protect its foreign reserves .

The added value of the Panama Canal, ports, rail and scheduled air transport fell 10.5%, 9%, 22.6% and 3.7% in 2009 respectively. However, the sector 'transport, storage and communication "as a whole (including the Channel ports, rail and air transport) grew 8.3% due to a sudden and extraordinary growth of telecommunications in 38.5%. The dramatic growth in telecommunications was led by the aggressive entry of two new companies competing in the market (Digicel and Claro) that expanded the range of cellular and disputed the market incumbent companies (Cable & Wireless and Movistar).

The value added of financial intermediation decreased 2.2% in 2009, because banks tightened credit and sacrificed some of its gains as a measure to counter the possible effects of global financial crisis. However, bank profits are still substantial and positive, and the National Banking Center remains one of the strongest in Latin America and who better to face global financial turmoil.

The added value of "real estate, renting and business" declined by 4.6% in 2009 due to his connection with the housing market in the United States. The housing demand of the baby boomer in Panama shrank sharply after the collapse of home prices in the United States. Prices of U.S. homes fell while a significant portion of the baby boomer could not sell their homes in the United States and move to Panama.

The value added of general government grew by 2.4% in 2009.

The demand of the sectors linked to foreign markets still remain weak in 2010 but is expected to recover, albeit slowly. Because of this, Panama Economy Insight predicts that economic growth in 2010 will be just 2.3%, although the canal is expanding. However, Insight expects Panama Economy in 2011 and 2012 the economy take off and grow strongly by 9.4% and 8.6% respectively, due to the expansion of external demand, the Canal expansion, construction of a subway in the City of Panama, among other public and private investments of great magnitude.