Positive Outlook Despite Oil Shock for the Dominican Republic

• BMI continues to expect that the Dominican Republic (DR) economy will expand by 3.8% in 2026, after disappointing growth of just 2.1% in 2025. Data released in the year-to-date have been remarkably strong, with the monthly activity index consistent with a roughly 2.0% quarter-over-quarter (QoQ) increase in output after a relatively soft end to 2025 due in part to adverse weather events. This pick-up appears to largely reflect a reacceleration of activity in the construction sector, where the imposition of tighter migration controls and some public budget execution issues acted as headwinds in 2025.
• Meanwhile, a tight domestic labour market and continued robust performance for the tourism industry, which has been underpinned by steady increases in sectoral capacity, have helped to sustain steady growth in services, a trend that is expected to continue.
• While the DR is a net energy importer, the government’s decision to shield the private sector from much of the oil price shock stemming from the U.S.-Iran conflict will help to reduce the direct impact on the economy. This does raise some fiscal risks (the subsidies are estimated to cost the government between DOP1.0-1.5Bn a week, or .02% of GDP), but the hit to the public finances should be manageable with the deficit set to widen from 3.6% of GDP to 4.0%.
• In this scenario, BMI anticipates that inflation will remain close to the upper end of the BCRD’s (Banco Central de la República Dominicana’s) 3.0-5.0% target range, reducing pressure on the central bank to hike. With views for no Federal Reserve (Fed) hikes this year, BMI assumes the BCRD will hold its policy rate at 5.25% in 2026.
• Risks to the projections are broadly balanced. While BMI remains constructive on growth, embedded in its forecast is an assumption that a more challenging global backdrop contributes to a modest deceleration in economic activity over Q2 that may fail to materialise given the data available through March. On the other hand, expectations are that the Strait of Hormuz will reopen by mid-year, triggering a sharp drop in oil prices over the second half of 2026. If the Strait remains closed, oil prices could reach above US$150/bbl, raising the risk of a global recession and leaving the Dominican government with a difficult decision on whether to retain existing fuel price subsidies or phase them out and pass the cost to consumers.

(Source: BMI, A Fitch Solutions Company)