Boston, MA -- (SBWIRE) -- 12/31/2013 -- Following a notable slowdown in real GDP growth in H113 and signs that economic activity will remain relatively moderate in the coming months, we are downgrading our 2013 real GDP growth forecast for Panama to 7.6%, from 7.8% previously. This revision is underpinned by our view that weakness in the commercial sector will persist in the coming months, as well as our Infrastructure and Freight Transport teams' forecasts for slightly slower growth in construction and throughput respectively in 2013.

Our long-held view for a slowdown in Panama's robust growth story continues to play out, with Q213 real GDP growth coming in at 7.6% year-on-year (y-o-y), only moderately stronger than the 7.0% y-o-y recorded in the first three months of the year. Moreover, with the monthly economic activity indicator increasingly showing erratic growth, and a deceleration in the commercial sector likely to continue weighing on growth in H213, we are downgrading our 2013 real GDP growth forecast to well below consensus estimates of 8.3%. Meanwhile, we maintain our 2014 real GDP growth forecast at 7.0%.

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We anticipate that the commercial sector (14.4% of real GDP in 2012) will continue to provide little support to headline growth in the coming months, due in part to relatively weak import demand from Venezuela, which is an important destination for exports from Panama's Colon Free Trade Zone (CFTZ), following the devaluation of the Venezuelan bolivar in February. We have seen this play out in recent months, as commercial sector activity contracted by 0.4% y-o-y in real terms in H113.

Moreover, local media reports indicate that the CFTZ is owed approximately US$1.2bn in debts from Venezuela, as importers have had significant issues accessing US dollars in recent months. Despite modestly revising up our 2013 real GDP growth forecast for Venezuela to 2.0% (see 'Slower Growth As Monetary Conditions Tighten', August 27 2013), we anticipate that high inflation and a weak currency will continue to dampen import demand, while dollar shortages will remain a hindrance for importers.

Headline Industry Developments

- 2014 air freight tonnage is set to grow by 5.68% in 2014, to 137,600 tonnes.
- 2014 tonnage throughput at Balboa is expected to grow by 7.11% to reach 29.24mn tonnes.
- 2014 tonnage throughput at Manzanillo is forecast to grow by 15.23% to reach 20.21mn tonnes.

Latest Developments

ACP And Japanese Car Sector Hold Meetings: The Japanese Shipowners' Association and car manufacturers met with the Panama Canal Authority (ACP) in Japan in September 2013 as part of talks concerning the Panama Canal's expansion programme and planned revised toll structure. During the meeting, the ACP gave an analysis of the impact of the revised toll structure on the car carrier segment. The ACP also updated the vehicle carrier segment about the progress of the US$5.3bn expansion programme.

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