Panama Economic Outlook

In 2007-2008 Panama saw stunning growth with 11.2 for 2007 and 8.6 in 2008 (1). According to a January 2009 joint report by Columbia University's International Affairs Online unit and The Economist's Intelligence Unit, the global growth slowdown will affect Panama, but ongoing infrastructure and private sector mega-developments as well as a sturdy banking center will mitigate the effects. The growth rate is projected to be between 3.5 percent and 4.1 percent(2), on par with the IMF's projected world growth rate of 3.7 percent(3), and well above the IMF's most recent projection of 1.4 percent growth for Latin American (4) and a 2 percent contraction in the US economy(2).

Positive market pressures in Panama come from several areas:

• The canal expansion: Financing for the $5.3bn (an estimated 23% of GDP) expansion of the Canal has been secured (5). The project is estimated to create 40,000 jobs in the next 7 years and double the capacity of the canal, a major source of revenue for the country. This coincides with other ongoing infrastructure megaprojects including major road and sewer improvements in Panama City. All of these projects guarantee both immediate financial boost and long-term added value to the country.


• International company relocation: Several Fortune 100 companies, including HP, Proctor and Gamble, Dell, 3M and Caterpillar have opened offices here in the past year, ensuring both an increase in the number of well paid consumers and government revenue. (6)


• Solid finance/banking industry: Panama's banking/finance industry had little involvement with the toxic debt products and irresponsible lending practices (1) (Panama has historically much tighter on financing than the US and European counterparts) currently crippling US and European sectors. This leaves Panama's finance industry in a strong position to continue functioning properly through the ongoing financial downturn.

Overall, Panama is not immune to the world economic climate, but has a solid domestic base to mitigate the effects of the downturn and continue on a solid growth track. The IMF recognizes that in general the developing world will continue to grow far more rapidly than developed economies. Taken together, these factors make Panama a far better option than European and US markets and positions it well ahead of the projected performance of Latin America as a whole.

Sources:

1. International Monetary Fund. IMF executive board concludes 2008 Article IV consultation with Panama. 28 July 2008.
2. CIAO/Economist Intelligence Unit. Panama: Country outlook. 17 January 2009.
3. International Monetary Fund (IMF) World Economic Outlook. April 2008.
4. Brookings Institute. Latin America's Economic Outlook for 2009: No Time for Optimism. 22 January 2009.
5. Trade Finance. "Panama Canal Expansion Signed". 11 December 2008.
6. La Prensa. "17 multinacionales se benefician de Ley 41". 7 January 2009.