Panamanian economy poised to grow by 7 percent in 2007

Panama City/ Miami, FL (ECLAC), December 14, 2006 -- For Latin America and the Caribbean, 2006 has been another good year for economic growth. The regional gross domestic product (GDP) is expected to increase 5.3% over the year, equivalent to a per capita increase of 3.8%. This marks the fourth consecutive year of economic growth, and the third consecutive year of rates exceeding 4%, after an average annual growth rate of only 2.2% between 1980 and 2002. Growth continues to fall short of other developing regions, however.

Economic expansion is expected to slow slightly in 2007, with the regional GDP growth rate projected to reach approximately 4.7%. This would put the increase in the region's per capita cumulative output at nearly 15% (or 2.8% per year) over the 2003-2007 period.

These are the latest figures presented by ECLAC in its Preliminary Overview of the Economies of Latin America and the Caribbean 2006, released today by José Luis Machinea, Executive Secretary of the UN regional commission. According to the report, the favorable international environment allowed the region as a whole to achieve an increase of 8.4% in the volume of its exports, which translated into a terms-of-trade improvement of more than 7% over the previous year for its leading commodities.

For 2006, for the region as a whole, growth in national income (GNP) exceeded GDP growth by almost two percentage points, reaching 7.2%. This was broadly attributable to improved terms-of-trade and increased remittances from abroad. In addition, other factors - including growing investor and consumer confidence, relatively low real interest rates, higher public spending, an increase in total income accruing to labor (driven by rising employment and a modest upturn in real wages) -- helped turn domestic demand, which rose by 7.0%, into an engine for growth.

Public spending rose as a result of a higher level of investment in physical and social infrastructure. Nevertheless, since fiscal revenues increased even more steeply, the prevailing picture shows central governments with higher primary surpluses (up from 1.7% to 2.1% of GDP, on average) and narrower overall deficits (from 1.1% to 0.3% of GDP).

In most countries, inflation decreased (in weighted terms) from 6.1% in 2005 to 4.8% in 2006. Many countries faced downward pressure on exchange rates because of large inflows of foreign currency from stronger export prices or remittances, and took measures to contain the impact. But, overall, most local currencies appreciated slightly (3.5% on average).

In the area of employment, ECLAC's Preliminary Overview 2006 indicates that economic growth fuelled job creation throughout the region. The rate of open unemployment continued the downward trend begun in 2004, albeit more slowly (dropping 0.4 percentage points), taking the rate to 8.7%. Real wages also benefited from increased demand for labor, and rose by an average of 3%.

The value of the region's merchandise exports and imports rose by 21% and 20%, respectively. As a result, the balance-of-payments current account surplus increased from 1.5% of GDP in 2005 to 1.8% in 2006.

Another distinctive trait of the region's current period of growth is its lessened vulnerability to the possibility of external shocks, the ECLAC report states. This is due to the adoption by many countries of more flexible exchange rates, lower foreign debt burdens and the building-up of international reserves.

Projections for 2007

ECLAC expects that the international environment over the coming year will continue to be positive for Latin America and the Caribbean, although less favorably than in 2006, given projections of a slowdown in world growth to around 3%.

Continued regional GDP growth for 2007 rests on a sound domestic macroeconomic environment and the impact that sustained growth will have on domestic demand. This is a promising development, as the region has suffered previously from a high degree of macroeconomic volatility which discouraged investment and the possibility of achieving sustained growth.

There are, nonetheless, factors that continue to demand attention, ECLAC states. In particular, mechanisms are needed to boost the region's external competitiveness via increases in productivity. At the same time there is a need to strengthen policy instruments at the national level to guarantee fiscal stability and minimize vulnerability to fluctuating economic cycles.

See also:

http://www.eclac.cl/prensa/noticias/comunicados/0/27580/GDPchartforprelimoverview_ENG.pdf

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