World Bank: Panama no longer fastest growing ecomomy in Central America

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By LatAm Reports Editor

Panama will no longer be the fastest growing economy in Central America. The World Bank (WB) considered this week that Costa Rica and Nicaragua will be the economies that will lead regional expansion this year, although at a slower pace than last year.

Central American growth will be led by a 3.9 percent rate in the Costa Rican economy, which in the next two years will remain at a constant pace of 3.7 percent. Last year this expanded 5.1 percent.

Meanwhile, Nicaragua will be followed with a rate of 3.7 percent this year, and then remain at 3.5 percent between 2025 and 2026. The local economy would grow less than last year, when the rate was 4.3 percent.

The Central Bank of Nicaragua this year, after the 4.6 percent reflected last year. The International Monetary Fund kept the projection at 3.5 percent in its update this month in Washington.

While the outlook for 2024 is favourable, risks that could affect macroeconomic developments persist, such as the materialization of geopolitical conflict shocks resulting in increases in oil and food prices, generating pressures on domestic prices, and the effects of tightening global monetary policy to contain more persistent inflation, which could further slow global production dynamics and affect exports. In the country, risks related to climate events also persist, the Central Bank said.

BCN relies on strengths of the economy

The top bank issuer hopes that the signs of strength that the economy has exhibited in recent months will help mitigate risks and lead to better-than-expected growth. Thus, a strength is the degree of openness achieved, highlighting the revenues generated by the export sector, and the continuity in external resource flows.

In addition, he cites the stability of the Financial System, which has increased the collection of resources through deposits to channel them towards credit, in conjunction with the proper coordination of fiscal, monetary and financial policies, also contribute to economic growth.

Behind Nicaragua, Honduras stands at 3.4 percent, then expanded in 2025 at a rate of 3.3 percent and 3.4 percent in 2026. Last year it was 3.5 percent.

The rate predicted for Nicaragua and the rest of Central America this year will be above 1.6 percent in Latin America and the Caribbean. GDP growth of 2.7 and 2.6 are expected by 2025 and 2026. These are the lowest rates compared to all other regions of the world and insufficient to boost prosperity. Many households are under pressure because social transfers are declining and wages have not yet recovered to prepandemia levels, the agency said in its report: Competition: The ingredient that is missing to grow?

For its part, Guatemala is halfway, with a growth of 3 percent for this year, whose rate will accelerate to 3.5 percent sustained over the next two years. In 2023, it is estimated that this economy expanded 3.5 percent.

Panama, the disappointment of the region

Panama is the economy that will disappoint with its performance this year, with growth expected of just 2.5 percent, one of the lowest rates in recent years and being in the queue along with El Salvador that will grow 2.5 percent.

The canal economy grew in 2021 at a rate of 15.8 percent, 10.8 percent the following year, and 6.5 percent in 2023. This reflects the level of deep slowdown at which the Panamanian economy will fall, which had stood out for leading wealth production.

In fact, the International Monetary Fund (IMF) also placed Panama among the economies that will grow the least in Latin America and the Caribbean, with a rate of 2.5 percent, just like Peru.

The Panamanian economy will be billed for the abrupt closure of the Panama Cobre mine, as well as the serious fiscal and economic difficulties that that country is going through, IMF technical staff recently said, during an official visit on February 20, 2024, according to the Panama Star media on its website.

Only the closed mining company contributed directly and indirectly about five percent of the Gross Domestic Product, the media said.

Added to this is the reduction of the qualification of the degree of investment, the phenomenon of the Child, the water crisis of the Canal, the migration, the uncertainty of the change of government and the policies that the next government will have to realize to save the fiscal confidence, according to the Panamanian media.

In the case of El Salvador, the 2.5 percent rate will remain unchanged from 2024 to 2026, according to the World Bank report, which suggested that governments strengthen competition agencies, including ensuring their independence and enforcing their ability to enforce antitrust and pro-competitive regulations, especially for larger companies.

Also support innovation policies and enhance leadership, i.e. improving management skills will help companies respond to markets, identify new opportunities, develop business plans and stimulate workers.

This article has been translated from the original which first appeared in La Prensa NI