Economic analysts review Panama challenges in year ahead

Economic analysts from several banks and investment firms in Panama have begun to publish their outlook for 2024, drawing an economic panorama with lower growth for most countries in the region and with some caution that the United States Federal Reserve will begin next year to reduce the pace of increase in interest rates.

Alberto Bernal, director of global strategy at the firm XP Investments, said that Panama would benefit from a possible slowdown in inflation and therefore lower prices of goods and services. He positively impacts the real estate market that can boost sales.

CANAL WATER CRISIS
On the other hand, he points out that the water crisis situation in the Canal, which has worried international trade, is expected to stabilize next year and he does not see a catastrophe on the interoceanic route.

“What we see is that if the Federal Reserve decreases interest rates, Panama, being a country with a dollarized economy, should see a positive effect of the decrease in interest rates for local investment and also the dollar depreciates internationally. other currencies such as the euro are gaining ground, which could make Panama more affordable for those who invest in the real estate market, for convention tourism, for commerce and for the financial sector,” Bernal said in a webinar organized by the Association of Capital Markets of the Americas.

Citi analysts indicate that Panama will be marked with an elections in the first half of the year.

Esteban Tamayo, economist for Colombia, Peru, Central America, and the Caribbean at Citi says “In Panama, we talk about continuity because although there are six candidates with notable differences, at the end of the day the economic policies they can carry out will be similar.”

Mining activity
The suspension of mining activity operations due to the unconstitutionality of the contract will have a direct impact on the economy, representing 3.5% of the country’s GDP and 80% of exports. “If there is a total closure of the mining company, which will not be quick but slow, there will be an economic shock. But in the political sphere we have seen that all the candidates have supported the population in the protest against mining, but this opinion may be perceived that the new government of Panama will have to propose a negotiation with the mine to plan the closure progressively.

The other challenge is the financial future of the Social Security Fund, specifically the pension system.

Citi forecasts that the Panamanian economy will grow by 2024 at a rate of 4.7%, not including the shock or impact of the total closure of the mine.

“Panama must enter a downward phase in its economic cycle because until the third quarter its activity was increasing but we will see an impact. Next year we expect a deterioration in the country’s labor outlook. We do not know how fast or permanent the cessation of mine operations may be, so that outlook is not clear or whether or not there will be a negotiation.”

He explained that the risks would be deterioration of the labor market and lower economic growth. “A slowdown in activity is coming and the restrictive policy of the United States may affect the flow of investments to Panama, which is why we see 2024 with economic deterioration in Panama,” says Tamayo.

Likewise, it points out that the issue of the Canal’s water crisis is likely to continue until April 2024, according to the climate and rainfall forecast of the National Office of Oceanic and Atmospheric Administration (NOAA).