In Panama, No Full Recovery Until 2023 Despite Double-Digit Economic Growth

• Fitch Solutions maintained its Panamanian growth forecast of 12.2% in 2021, as looser economic restrictions support a rebound in economic activity.
• The agency expects base effects will drive the rebound after a 17.9% contraction amid extensive restrictions on economic activities in 2020, though it also expects significant mining sector growth as major projects ramp up production.
• Growth should strengthen in the coming months as the slower spread of COVID-19, looser restrictions, and improving business confidence boost activity. In particular, the sectors most impacted by the initial lockdown in Q2 2020 and Q3 2020 will post sharp rebounds in economic activity. Manufacturing and commercial activity contracted over 35.0% in Q2 2020 and Q3 2020, and construction fell 79.6% y-o-y.
• Vaccine distribution will also aid in economic normalization. Through May 5, Panama had administered 16.4 doses per 100 people, the second-highest rate in Central America.
• That being said, the economy is not expected to recover to pre-pandemic levels until 2023 amid weak household incomes and high unemployment. Despite the 12.2% y-o-y real GDP growth, Fitch Solutions forecasts the economy will remain 7.9% below 2019 levels in 2021, restricting household incomes and consumption. In February, economic activity grew 3.6% m-o-m, but remained 9.7% lower in annual terms, indicating the limitations of gradual increases in demand.
• Public spending will also provide limited support to aggregate demand as the government looks to rein in its elevated deficit. Panama’s fiscal deficit is forecasted to measure 8.0% of GDP in 2021 as economic activity and revenues lag behind their pre-COVID-19 levels.

(Source: Fitch Solutions)