Panama warned to remain neutral in US-China tensions

Panama will take longer to recover from the recession caused by the pandemic than other countries in Latin America. Says  the latest report of The Economist Intelligence Unit, published in January.

Assuming moderate global economic and trade growth, “we expect Panama’s domestic product (GDP) growth to stabilize at a more steady pace, averaging 4.1% per year between 2023 and 2026,” according to the analysis.

Private consumption and investment will drive the economic recovery, but the scale and nature of the recession will hamper growth prospects.

Vaccination
“Vaccination rates are quite high, more than 90% of adults have received at least one dose, and we do not expect lockdown measures that would seriously disrupt the economic recovery.”

For 2022, the report calculates that Panama’s GDP growth will be 6%, after an estimate of 14% for the end of 2021 and a drop of 17.9% in 2020.

The analysis highlights as an important fact that household income was greatly affected by the stagnation of economic activity; estimating an average unemployment rate of 15% at the end of 2021, but with a tendency to gradually decrease.

According to statistics from the National Institute of Statistics and Census, as of October 2021, there were 220,000 unemployed in the country and another 677,000 informal workers.

For The Economist, with economic activity still depressed and with permanent damage to company balance sheets, private consumption will not fully recover until 2023.

Difficulties
In fiscal matters, the report indicates that the government would have difficulties complying with the deficit ceilings described in the fiscal responsibility law.

“The medium-term targets will prove more challenging than the 2021 target of 7.5%. We expect spending pressures to ease gradually,” making consolidation difficult.

They expect the non-financial public sector deficit to drop to 2.1% of GDP by 2026, supported by production revenues at the Cobre Panamá mine.

The analysis mentioned a vital fact related to the Canal and decision-making that influence diplomatic and commercial relations between Panama and other countries.

“The Panama Canal handles 6% of world merchandise trade; this makes the country geopolitically important, so staying neutral amid US-China tensions will be crucial.”