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Panama economy grew 7% in the first three quarters of 2010

January 14, 2011

Panama's economy grew 8.4% in the third quarter of 2010 according to data of gross domestic product (GDP) released by the National Institute of Statistics and Census on December 16. The cumulative growth of the first three quarters of 2010 was by 7%. The rapid acceleration of the economy of Panama has been surprised local economists and international agencies such as the International Monetary Fund (IMF) and the Economic Commission for Latin America and the Caribbean (ECLAC), who had predicted this year lower growth. Before the international economic crisis Panama's economy has been growing steadily strong double-digit rates for several consecutive years and now certainly is prepared to resume the pace of growth. From 2011 to 2014, Panama's economy could grow at double-digit rate.

The strength of the Panamanian economy is evident in the business environment and good employment prospects announced recently by Manpower. These developments are occurring at a time when even the expansion of the Panama Canal by US$5.250 billion dollars has not entered its peak construction. The construction of the first Metro line in Panama City by US$ 1.446 million will start in the first quarter of 2011. The construction of a copper mine by US$4.320 billion will start in the first quarter of 2011 too. In the electricity sector is projected investments by US$4.377 million over the next six years, according to a report released recently by the Public Services Authority (ASEP). The Panamanian Association of Hotels (APATEL) has estimated the hotel investment at US$2.387 million dollars in the period 2010-2012. The government plans to make public investments amounting to US$13.600 million during the period 2010-2014. Panama's economy is growing very strongly, despite not yet fully enter the large investment projects.

PANAMA'S ECONOMIC GROWTH RATES BY ECONOMIC SECTORS (%)
ECONOMIC SECTOR 2007 2008 2009 2010
Agriculture 2.7 4.4 -9.2 2.5
Fishing -3.3 15.7 -3.7 -26.9
Mining, sand extraction and quarries 24.0 30.9 4.4 5.3
Manufacturing 5.6 3.9 -0.4 0.8
Electricity power generation, distribution, gas and water 8.2 3.8 7.5 5.4
Construction 21.8 30.7 4.5 5.3
Wholesale and retail, Colon Free Trade Zone 10.7 7.0 1.6 10.1
Hotels and restaurants 14.2 8.3 2.6 10.9
Transportation, warehousing and communications 17.0 15.5 6.6 14.8
Banking and other financial services 19.2 14.1 1.6 1.6
Real estate and other services 8.6 7.2 4.5 6.9
Private and public teaching 7.1 1.6 2.4 1.6
Private and public healthcare and social services 12.9 1.8 1.1 1.4
Other social services 14.4 6.8 4.3 5.5
Public administration and defense 3.3 8.5 3.3 4.2
Homes with personal services 1.1 1.8 -0.9 1.2
GROSS DOMESTIC PRODUCT 12.1 10.1 3.1 7.1
Last updated: January, 2011        

 

Construction sector grew just 4.7%, 4.6% and 7.1% in the first, second and third quarter of 2010 respectively, but in 2011 return to level that were growing before the international financial crisis. Regarding the construction growth of 7.1% in the third quarter, INEC has explained that it is due to the implementation of public and private investment in civil engineering works and projects, mainly non-residential. Non-residential projects include large hydroelectric, investments in the expansion of the Panama Canal, the sanitation of the bay, the second stage of the coastal strip, Tocumen International Airport expansion, transshipment ports expansion, and expanding and rehabilitation of road infrastructure, among others.

Construction sector growth is different from observed before of the financial crisis. Previously, it was a sustained growth in housing demand of the retirees of the United States, which slowed when they were hit by the financial crisis and postponed their retirement plans and moving to Panama. Now the construction growth will be based on unprecedented expansion of productive capacity in transport and logistics sectors and basic infrastructure, tourism and trade.

Transport, storage and communication sector is fastest growing after the economic global downturn. This sector showed an expansion of gross value added by 14.8% in the first three quarters of 2010, after growing only by 6.6% in 2009. Largest growth was in transshipment port, with an expansion of transshipment container movement (measured in TEU's) of 30.2% in the first ten months of 2010, after contracted by 8.1% in the same period of 2009.

Passenger air transport grew 17.8% in the third quarter of 2010. In fact, in 2009, despite of the global downturn, this sector grew at double-digit rates. The expectation is also favorable, which recently Panamanian Aviation Company (COPA Airlines) announced the purchase of 32 new Boeing 737-800 aircraft by Us$2.6 billion, in order to expand its air hub with more destinations and more flights within South America. Although this new order but not delivered from 2015, indicates how would expand the air hub capacity in the medium term to cope with demand growing at double-digit rates annually.

Panama Canal value added grew by 5.2% in the third quarter of 2010, which is due to growth in net tons of 4.5% and the increase in secondary activities such as, services to vessels, which rose 6.7% and sales of 36.3% water, according to INEC. The Panama Canal appears to be recovering from the impact of US economic crisis, with positives growth rate of net tons, after a first half of 2010 usually negative.

Hotels and restaurants value added grew by 10.9% in the first three quarters of 2010, after growing just 2.6% in 2009.

Wholesale and retail value added, including the Colon Free Zone, expanded by 10.1% in the first three quarters of 2010. Colon Free Trade Zone expanded by 10.9% in the third quarter of 2010, due to increasing volume of re-exports, according to INEC GDP report.

Real estate value added expanded by 10.2% in the third quarter of 2010. This sector grew 7.6% in the first three quarters of 2010. In 2009, this sector contracted by 2.9% because of lower house and apartments sales to US citizens. The growth of this sector in 2010 was due to increasing the house supply produced in 2009, at the time of real estate boom.

Banking value added expanded by 4.1% in the third quarter of 2010, after growing only 0.8% and 0.1% in the first and second quarters respectively. Cumulative growth of this sector in the first three quarters was just 1.6%, but the prospects are favorable, with growth rates of earnings and new loans. Banking sector grew helped by the better performance of the International Banking Center, which was introduced during the period, an increase of 4.8 percent, mainly Local financial services, complementing this behavior, the commissions earned and other income showed a positive change compared to the same quarter the previous period. In addition, there was an increase in domestic credit, said INEC in its GDP report.

Contrary to high performance of most economic sectors, fishing shows a sharp contraction of 40.8% in the third quarter of 2010, after decreased by 21% and 15.7% in the first and second quarters respectively. Total cumulative contraction of this sector in the first three quarters of 2010 was of 26.9%. This is a situation worse than in 2009, when the activity recorded a decrease of 3.7%. Yellow tuna exports fell sharply by 49.5% in the first ten months of 2010, after contracting by 16.9% in 2009 because of shrinking demand in United States and Europe. Shrimp exports contracted by 25% in the first ten months of 2010.

Agriculture and livestock value added grew only 2.5% in the first three quarters of 2010, after contracted by 9.2% in 2009. Fishing value added suffered another contraction due to shrinking demand in United States and Europe. Melon exports shrank by 64% in crop season (from January to May of 2010). Watermelon export value fell by 17.6% in 2010 after contracting sharply in 53.4% in 2009. Pineapple export value contracted for three consecutive years, although in 2010 decreased just by 3.7% after contracted by 12.3% and 12.8% in 2008 and 2009 respectively.

Private education and Private health value added expanded by 6.4% and 3.9% in the first three quarters of 2010 respectively.

General government value added expanded by 3.6% in the third quarter of 2010. This growth was mainly due to increased employment in the Ministry of Education, although the INEC GDP report also notes a decrease in the Ministry of Health. Cumulative growth of government services was 1.9% in the first three quarters of 2010.

Taxes on products minus subsidies shows a sharp increase of 18% in the third quarter of 2010, because increase in collection of ITBMS and import duties. With the recent tax reform, ITBMS increased from 5% to 7% (ITBMS is a tax on value added) on July 1 of 2010.

PANAMA'S GROSS DOMESTIC PRODUCT BY ECONOMIC SECTORS 
(millions of US$ at 1996 constan prices)
ECONOMIC SECTOR 2007 2008 2009 2010
Agriculture 688.8 719.5 653.3 669.6
Fishing 356.2 412.2 397.0 290.0
Mining, sand extraction and quarries 197.8 259.0 270.4 284.7
Manufacturing 1,126.7 1,170.9 1,165.7 1,174.7
Power, gas and water 484.3 502.9 540.8 570.1
Construction 857.1 1,120.3 1,170.3 1,232.2
Wholesale and retail, Colon Free Zone 2,517.7 2,695.2 2,737.4 3,014.0
Hotels and restaurants 494.9 535.9 549.7 609.9
Transportation, warehousing and communications 3,417.5 3,945.8 4,206.3 4,829.3
Banking and other financial services 1,414.7 1,614.6 1,640.1 1,665.8
Real estate and other services 2,607.7 2,795.6 2,920.0 3,120.1
Private and public teaching 519.3 527.7 540.6 549.2
Private and public healthcare and social services 448.6 456.9 461.8 468.4
Other social services 517.1 552.3 575.9 607.9
Public administration and defense 569.8 618.2 638.8 665.8
Private homes with personal services 112.6 114.7 113.6 115.0
Net direct taxes on output 1,133.2 1,175.3 1,251.0 1,366.1
Minus financial services 379.8 403.9 430.4 446.7
GROSS DOMESTIC PRODUCT 17,084.3 18,812.9 19,402.5 20,786.1
Last updated: January, 2011        

 

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