GDP will grow by 2.5% in 2024 under the influence of a slowdown

Gross domestic product (GDP) of Panama “likely to grow by 2.5% in 2024.”which translates into a “strong deceleration” compared to the 7.3 percent growth the indicator saw in 2023, Moody’s risk rating agency said Monday.

“The closure of the Cobre Panamá mine will affect economic activity in 2024 and weaken business and consumer confidence. In addition, the presidential election in May and the drought affecting the Panama Canal increase uncertainty, translating into lower volumes for banks,” Moody’s added in report.

The Cobra Panamá deposit, operated by the Canadian company First Quantum Minerals and which once represented 2% of the world’s production of the mineral, has been paralyzed since the end of 2023 following a ruling by the Supreme Court of Panama that declared the concession agreement unconstitutional. mine, whose activity accounted for almost 5% of the GDP of Panama, a country that could face multi-million international arbitrations because of this decision.

The Interoceanic Canal has been facing severe drought since last year, which has forced it to reduce its daily transit of ships, currently 27, although it has reached 22 (November 2023) – when the optimum is 36 – which is expected to cause annual toll revenues of way down to 800 million dollars, according to official calculations.

These factors, to which can be added the Social Security crisis and rising debt costscauses the Panamanian economy to face “fiscal challenges amid rising consumption rigidity and a higher interest burden from 2024 onwards,” according to the rating agency.

Last October, Moody’s downgraded Panama to Baa3 from Baa2 and changed the outlook from negative to stable, as a result of the authorities’ lack of “effective response” to address the structural fiscal challenges that have “grown over time” in the Central American country.

In this context, there are warnings about the possibility that Panama will lose its investment grade in the coming months.

Panama’s dollarized economy grew by 10.8% in 2022 and 15.3% in 2021, leaving behindis a debacle due to the pandemic, which in 2020 collapsed GDP by 17.9 percent. Between 1993 and 2018, it was the fastest growing economy in Latin America, with an average of 5.9% per year, according to data from the International Monetary Fund (IMF).