The economy recorded a lackluster performance in the third quarter, with annual GDP growth clocking in at 3.0% for a second consecutive quarter on the back of hurricane-induced disruptions in September. It has made significant headway since, however, with the Central Bank facilitating
credit growth and the government allocating additional budgetary resources to shore up ailing activity in the construction sector. These measures are now bearing fruit. Economic activity expanded on an
annual basis at the fastest clip in nearly a year in November. Meanwhile, new rules approved by congress in late December will bring domestic financial operations in the country up to international standards. This is expected to attract foreign investors who had previously shied away from
the market due to a perceived lack of transparency, which will help push down borrowing costs for the government and improve the Dominican Republic’s credit profile.
Economic growth will benefit this year from an accommodative monetary stance and increased government support. Household spending will be buttressed by robust remittance inflows and cheaper credit, while the external sector is expected to record another strong performance on
the back of robust global growth and a weaker peso. FocusEconomics panelists expect GDP growth of 4.5% in 2018, which is down 0.1 percentage points from last month’s forecast. For 2019, panelists also see the economy expanding 4.5%.
Inflation rose to an over four-year high of 4.2% in December from 4.1% in November, slightly above the midpoint of the Central Bank’s inflation target range of 3.0%–5.0%. On 29 December, the Bank maintained its monetary policy rate at 5.25%. FocusEconomics panelists expect inflation
to end 2018 at 3.9% and 2019 at 4.1%. REAL SECTOR | Hurricanes take a toll on the economy in Q3
Comprehensive data from the Central Bank showed the economic recovery was knocked off course in the third quarter on the back of disruptions caused by Hurricanes Irma and María in September. However, these were offset by improving dynamics in the domestic economy, reflective of a loosened fiscal stance and the Central Bank’s policy decisions aimed at boosting credit growth. GDP rose 3.0% annually in the third quarter, which matched the figure recorded in the second quarter and marked the joint-lowest log since Q1 2013. In the domestic sector, private consumption growth decelerated slightly to an over two-year low of 3.2% in Q3 from 3.4% in the previous quarter. Proxy data for consumption showed that household spending was particularly weak at the start of the quarter, but firmed up as the Central Bank eased monetary conditions in late July and the government turned more supportive of growth. Public consumption was up a solid 7.5% from the previous year in Q3, the highest figure since Q1 2015 and above the 6.9% expansion recorde Meanwhile, fixed capital expenditure swung from an 8.7% plunge in Q2 to a 1.5% expansion in Q3. This reflected stronger capital outlays across multiple industries, although some—including the import-intensive construction sector—experienced severe hurricane-related disruptions in September.
The external sector had a strong performance in the third quarter, with exports recording a resilient 3.5% increase despite the effect of the hurricanes. These were particularly acute in the northeastern part of the country, a major tourist hub. Tourism is one of the key export-oriented sectors of the economy and a crucial source of foreign currency. Meanwhile, imports recorded a 5.4%
decline on an annual basis in Q3, nearly double the 2.9% decrease recorded in Q2 and the largest contraction since Q1 2013. All told, the external sector’s net contribution to growth was 2.5 percentage points in Q3, only marginally below the 2.6 percentage-point contribution recorded in the previous quarter.
Leading data suggests economic momentum continued to build throughout the fourth quarter after bottoming out mid-way through the third quarter. On the back of an improving labor market, cheaper credit, robust remittance inflows and strong global growth, the economy is expected to grow at a robust clip in 2018.
The Central Bank expects growth of 5.5% in 2018. FocusEconomics Consensus Forecast participants see the economy growing 4.5% in 2018, which is down 0.1 percentage points from last month’s forecast. For 2019, panelists expect economic growth to also expand at a pace of 4.5%.
REAL SECTOR | Growth in economic activity hits nearly one-year high in November
The economy is staging a strong recovery in Q4 following hurricane-related disruptions in late Q3, aided by more supportive fiscal and monetary stances and strong global economic growth. Economic activity rose 6.8% from the same month a year earlier in November, according to the Central Bank’s
monthly indicator for economic activity (IMAE, Indicador Mensual de Actividad Económica).
November’s figure was the highest in nearly a year and came in well above October’s 4.9% increase. A breakdown of the print revealed strong performances in the agriculture, financial services, and hotels, bars and restaurants subcategories. As a result of November’s solid expansion, annual
average growth in economic activity edged up to 4.5% in November from 4.3% in October, marking a three-month high.
MONETARY SECTOR | Inflation accelerates to over four-year high in December Consumer prices rose 0.97% from the previous month in December, which followed a 0.76% increase in November and marked the highest monthon- month change since January 2013. According to the Central Bank, the increase was largely driven by higher prices for food and non-alcoholic beverages. Higher transport costs also contributed strongly to the December print, reflecting much higher airfares and sizeable increases in gasoline prices. Inflation rose to 4.2% in December from 4.1% in November, the highest print since October 2013. As a result, inflation closed the year slightly above the
midpoint of the Central Bank’s inflation target range of 3.0%–5.0%. Coreinflation, which excludes volatile items such as food and energy prices, rose to an over two-year high of 2.4% in December from 2.3% in November.
At its 29 December monetary policy meeting, the Central Bank kept the main policy rate unchanged at 5.25%, where it has been since July. The Bank noted that inflation expectations remained firmly entrenched within the 3.0%– 5.0% tolerance band, warranting its current stance. Measures to stimulate economic activity through credit growth have contributed to the recent pick-up
in inflation and have proven positive to the economy, which weathered the recent hurricanes that struck the country in September. FocusEconomics Consensus Forecast participants expect inflation to end 2018 at 3.9%, which is unchanged from last month’s projection. In 2019, the panelists project inflation to increase to 4.1%.
FUENTE: Focus Economics - https://www.focus-economics.com/ - desde Barcelona España
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