economy

Citibank worries

Citibank analysts appear to have confirmed the opinion held by some Panamanians that the prospects for the country's continued economic growth remain strong, but they are concerned about rising inflation.

According to a recent company report, the analysts were in Panama during the first week of July and held meetings with the Ministerio de Economía y Finanzas (MEF), the Autoridad del Canal de Panama (ACP), several local companies, and local economists. The report stated that “the widespread optimism we had observed during our previous visit to Panama in September 2007 remains virtually unchanged.”

The Panama Canal expansion and “the likely construction of the Qatari refinery support this optimism,” the report says. Qatar Petroleum and Occidental Petroleum (OXY) are expected to submit their final proposal for building the project before the end of the year. In the meantime, there is “an increasing sense of hope” that construction of the refinery will begin “over the next 1-2 years.”

Citibank reported that the refinery project “could be worth” around $7 to $8 billion. The Canal expansion has been estimated at $5.2 billion.

Panama's construction boom, in the analysts's opinion, will be maintained at least in the short term by “the need to increase hotel capacity.”

However, Citibank has been worried about rising inflationary pressures “[f]or some time,” the report states, noting that inflation is currently close to 9 percent. “We believe that inflation could not only hurt the country's competitivenesss, but also could damage consumer confidence.” Given the absence of hard data to confirm that view, the analysts found it difficult to assess whether the country's current increase in productivity could offset inflation.

Last July 14, the Contraloría General de la República reported that the consumer price index had risen 9.6 percent from May 2007 to May 2008. That is the fastest escalation in prices since the 1980s. Moreover, it's greater than the 9.2 percent increase Citibank had predicted for the same period.