After a slow 2014, indicators are showing Panama’s economy growing strong as we close out 2015. In fact, according to recent data, Panama’s economy grew by 5.8% in Q2, 2015, which is higher than expected, and great news for offshore investors hedging future bets on Panama’s leading economy. This growth bucks the trend of 2014, where three years of nearly double-digit growth cooled, leaving many to wonder if the overall growth was sustainable. However, with tourism on the rise, and construction maintaining its steady output, Panama’s economic growth shouldn’t come as a surprise to anyone. What’s more, it may be a sign that those numbers will grow ever further in 2016.
Panama’s service economy is still dominant
Simply put, in all areas of the service sector, Panama’s economy is doing great. Specifically in tourism, hotels, restaurants, and private transportation. More tourists are coming to Panama, and better yet, they’re spending more while they’re here. In fact, tourist spending is up by more than 15%, which is a key number when you look at overall service sector growth. Panama’s yearly tourist entry tally is approaching 3 million people per year, and each person is now spending more while here. This excess spending is going directly into services, transportation, and luxury hotels.
Solving the hotel occupancy issue
One of the industries that have seen growth in Q2, albeit a modest 2.2%, is the hotel industry. And while many will point to Panama’s hotel industry struggling to keep rooms filled, it’s having less of a negative impact than you may expect. Hotels are contributing to the economic growth of Panama in a very unique way; they help drive the construction and real estate industry. So, even if occupancy levels hover around 60%, it’s only an indication of how fast the hotel space in Panama is growing. In other words, hotel and real estate developers are predicting demand, and getting ahead of it. Looking at the 5-year growth of overall tourism numbers, this occupancy shortage should decrease as demand grows.
Other growth industries this year
Tourism is not the only big indicator of economic growth in 2015. Commercial, industrial, and Canal construction has actually lead to a boost in mining and mineral excavation in Panama. This is a key industry in Panama’s construction boom, as it keeps prices down by offering a domestic solution rather than a pricier imported one. Agriculture remained stable, and continues to be a small part of the overall economy. However, large scale logistics and transportation growth has gone right along with the positive trend, as air, sea, and land logistics all grew at higher numbers than the same period in 2014.
What’s in store for 2016?
With the numbers from the first half of 2015 looking strong, we expect Q3 and Q4 numbers to finish even stronger. And that really sets the precedent for what is expected in 2016. Tourism should continue to grow, as significant new real estate and hotel construction is already slated for both 2016 and 2017. But the real story of 2016 will be the Panama Canal Expansion. If the project is complete, and fully operational as planned, 2016 will be a massive year for economic growth and investment in Panama. The Canal is expected to push trade growth into double digits, which will have ancillary advantages to the service economy that is already booming.
Nothing is a guarantee, however, and offshore investors should still proceed with caution, and do plenty of research before making long-term commitments in Panama. For what it’s worth, though, the numbers look very good as of now.
