Panama: Strong growth fueled by capital inflows

​Panama’s economic growth scores above the regional average. The country benefits from the canal activity, the Colon free zone trade, and its role as an international banking center and a regional financial hub. Panama’s economic openness relies on numerous free trade agreements. At the same time, this increases vulnerability to external shocks, notably from the U.S. Economic activity has slowed down from +11.8% in 2011 at a gradual pace. Euler Hermes expects an output growth of +4.8% in 2016. The USD appreciation, a weak international trade which translated into a decline in Canal traffic and delays in the waterway’s expansion will continue to weigh on economic activity. 

Inflation is well-anchored by the use of the USD as the official currency. Despite a hike in electricity tariffs in 2015 and the elimination of some price controls, inflation was particularly low in 2015 at +0.1%. It should remain sluggish in 2016 (+0.7%) if oil prices remain low for long. The current account deficit will continue to be large: above -3.0% of GDP in 2017.