Panamanian Growth to Moderate over Near Term

  • Panama’s real GDP growth is expected to come in at 2.6% in 2025, slightly below 2024’s estimated outturn of 2.8%. Growth will be supported by a return to more normal water levels in the Panama Canal (which accounts for roughly 7.5% of GDP) after several years of reduced throughput due to drought.
  • An upward revision to the projections would have been on the cards given solid incoming data; however, those prints largely predate the aggressive shifts in U.S. trade policy seen since March 2025 and the deterioration in foreign relations between the U.S. government and the Mulino administration over President Donald Trump’s insistence that the Panama Canal be either returned to U.S. hands or that appropriate compensation should be paid.
  • Panama is not particularly exposed to the direct effect of tariffs, given that goods exports account for a small share of GDP. Nonetheless, its status as a major logistics hub does leave it more vulnerable to the knock-on consequences of tariffs on goods trade, but the impact will be masked in 2025 by a surge in global trade over H1 2025 as firms race to front-run tariffs.
  • As a result, the primary impact on growth in the near term will be a drop in business confidence, exacerbated by persistent concerns that the Trump administration may impose financial sanctions of some sort, which Panama is highly exposed to as a dollarised economy, in response to Mulino’s reluctance to hand back control of the Canal.
  • Further, two domestic headwinds will add to the existing pain. First, the government’s aggressive fiscal consolidation plans, which will likely take the form of spending cuts, will likely see public investment set to bear the brunt. Second, a national strike that began in mid-to-late April in response to the government’s social security reforms will weigh heavily on economic activity in Q2 2025, with the Chamber of Commerce estimating that the stoppages are coming at a daily cost to the economy of around US$100Mn (approx. 0.1% of GDP).

(Source: Fitch Connect)