Panama’s Economy Set at 9% Growth Rate

Panama’s economy is not only the fastest growing economy in Latin America, it is also boasts one of the world’s biggest growth rates for 2011. Panama’s economy expanded 9.7% during the first three months of 2011 from a year earlier, according to the Panamanian Ministry of Economy and Finance. The impressive growth rate can be contributed to the country’s transoceanic canal, construction and banking.

Panama’s Minster of Economy and Finance, Alberto Vallarino, told the Chamber of Commerce on June 11 that Panama had exceeded the projected growth rate for the first quarter.

Additional growth in Panama is driven by the expansion of the Panama Canal, which is costing the government $5.2 billion, construction of Latin America’s first Metro line, efforts to clean the bay of Panama, and heavy infrastructure investments in roads and highways. In total, the government is forecasting to invest more than $13 billion dollars in 2011 spread across various projects, as well as generate more than 34,00 jobs over a three year period. In 2010 the Panamanian economy reported a 7.5 percent real growth rate, and posted 8.7 percent in the fourth quarter. Analysts predict that growth in 2012 to be somewhat slower at 7 percent, but still a figure that makes Panama’s economy look recession proof and ripe for foreign investment. 

The fast pace of growth has led some analysts to be concerned over the potential for inflation. The country recorded its fastest inflation rate in more than two years – 6.4 percent. 

Consumer prices are on the rise in Panama. High oil prices have led to transportation prices to increase by 13.6 compared to a year earlier, food and beverage rose 6.1 percent, and goods and services also climbed 7.8 percent respectively, the government reported.

The government needs to pay special attention to price and wage pressures in order to curtail inflation. Panama needs to undergo a cultural change and increase wages so consumers can stay afloat with the increased prices. 

Panama has traditionally not experienced strong inflationary periods, and it remains to be seen how policymakers will react if consumer prices continue to rise. 

The International Monetary Fund has reported Panama’s inflation to be 5 percent, but recently IMF officials have considered increasing the outlook.