Panama: Year in Review 2012
Forecasts indicate Panama recorded another impressive year in terms of macroeconomic growth in 2012 and it is likely the economy once again led Latin American growth figures. The economy is anticipated to have expanded at a double-digit rate for the second consecutive year, having posted 10.6% growth in 2011. The Ministry of Economy and Finance has forecast a slight increase to 11% for 2012.
Indeed, GDP growth over the past five years, which averaged 8.6% from 2007 to 2011, could have easily averaged in the double-digits had it not been slowed by the world economic crisis. The country’s primary growth drivers include a thriving construction sector, a strong financial centre, steadily improving tourist numbers, and its continued development as a major transport and logistics centre. However, despite significant macroeconomic progress over the past decade, the effects of Panama’s rapid expansion have yet to trickle down throughout the whole of society.
Indeed, in 2010 some 13.8% of the population was still living on less than $2 per day, according to the World Bank. Meanwhile, though the unemployment rate fell to a low of 4% in August 2012, the rate of informal employment was reported at 32% in 2011, according to the National Institute of Statistics and Census (INEC). Additionally, the combined sub-employment rate was recorded as 15.6%.
High informal and sub-employment rates can have significant effects on overall economic productivity and efficiency. Improving social mobility and reducing income disparity have been key features of several administrations, though such solutions require fundamental alterations to social sectors, such as health and education, which may take several years to implement.
In the meantime, the government has made job creation a top priority in its fight against poverty. Indeed, the low unemployment rate is in part due to the multitude of construction projects, the most notable of which is the $5.25bn expansion of the Panama Canal. Additionally, there is the $1.5bn metro being built in Panama City and a further $1.94bn worth of government-funded infrastructure projects expected to be finished between 2012 and 2014.
Residential, commercial and retail office space is also on the rise as private sector developers look to cash in on the rapidly expanding economy. As a result of the uptick in both public and private sector construction projects, the sector has been expanding at nearly twice the pace of the wider economy, posting average annual growth of 16.9% between 2007 and 2011, according to data from INEC. Through the first seven months of 2012, the value of construction projects soared 45.3% over the same period in 2011.
Panama’s rising status as a tourist destination has been a factor in driving the construction of higher-end hotels and vacation homes. In 2011 Panama received more than 2m tourists, a goal originally set for 2014, and this number was expected to reach 2.2m by the end of 2012. Indeed, the sector was expected to expand its contribution to GDP by 10% in 2012, according to Salomon Shamah, the general manager of the Panama Tourism Authority.
Meanwhile, Panama’s international financial centre continues to grow as banking sector assets increased 11.59% in the first nine months of 2012 to $86bn, and local credit expanded 15.7% to $32.2bn. While local deposits also grew 13.3%, they represent just 41.9% of the sector’s assets, leaving the financial industry somewhat exposed to external shocks. Nevertheless, despite lagging behind the transport and commerce industries, the financial sector, which contributed 8.1% to GDP in 2011, has played a vital role in Panama’s recent economic growth.
Yet it is most certainly Panama’s transportation and logistics sector that contributes most to economic development. Having grown from $3.4bn to $5.6bn in the 2007-11 period, the sector accounted for 24.1% of GDP in 2011, according to INEC. During that time it managed annual average growth of 13.9%, largely due to the Panama Canal’s integral part in global trade, a role that is set to swell when the current expansion is complete in 2014, doubling current capacity.
Having experienced double-digit growth for two consecutive years, expansion is expected to decelerate in 2013 as the Economic Commission for Latin America and the Caribbean has forecast Panama’s GDP to expand 7.5% in 2013. Despite challenges, Panama’s long-term growth prospects, thanks to its role in regional and international trade and finance, are very bright indeed, and the country should continue to be at the top of regional growth charts in the medium term.