Boston, MA -- (SBWIRE) -- 04/11/2014 -- We forecast a continued moderation in Panamanian real GDP growth in 2014, as delays to the canal expansion project temper growth in the construction and communications and transport sectors. The freight industry also obviously has more than a close eye on proceedings at the Canal and the delays to expansion are causing a few raised eyebrows. Moreover, should an ongoing contract dispute over the canal expansion result in a prolonged work stoppage, it would pose downside risks to our real GDP growth forecast of 7.1% this year.
While we see upside risks to our 2013 real GDP growth estimate of 7.6% for Panama, due to a strong Q3 2013 growth print and upward revisions to previous data, we maintain our view for a continued slowdown in growth this year at 7.1% (see 'Growth Slowdown Taking Hold', September 16 2013). This marks a notable deceleration from the double-digit growth rates Panama has posted in recent years on the back of the Panama Canal expansion. In particular, while activity in the construction sector rebounded in Q3 2013, we expect that an ongoing dispute between the Panama Canal Authority (ACP) and the Grupo Unidos por El Canal (GUPC) consortium working on the Panama Canal expansion project will temper growth in Q114. GUPC, which is comprised of Spain's Sacyr, Italy's Salini Impregilo, Belgium's Jan De Nul and Panama's Constructora Urbana, have cited US$1.6bn in cost overruns and threatened in late December to suspend work if additional costs were not covered by the ACP.
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While the stoppage has not yet materialised, the dispute is ongoing, such that we expect that weaker construction activity, due to a current 'go slow' order, is likely to weigh on economic activity through Q114 at least. While we remain comfortable with our full-year headline growth forecast of 7.1% for Panama, an all-out work stoppage or the persistence of this dispute over a multi-month period could prompt us to revisit our forecast.
In particular, with another devaluation of the Venezuelan bolivar likely this year, in addition to the covert devaluation of the exchange rate via the expansion of a supplementary source of foreign exchange at rates well weaker than the official exchange rate (Sicad), and dollar shortages likely to persist, we see little to suggest that a pick-up in import demand is on the cards (see 'Unofficial Devaluation Impact: Keeping An Eye On Fundamentals', December 19 2013). Colombia, another major source of re-exported goods from Panama's Colon Free Trade Zone, has also caused headaches for Panama's commercial sector in recent months. A tariff on footwear and apparel imposed last year looks set to remain in place, until the World Trade Organisation (WTO) completes its arbitration process.
Headline Industry Developments
- 2014 air freight tonnage is set to grow by 5.38% in 2014, to 136,300 tonnes.
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