Panama's macroeconomic performance improves.

Panama's legislature approved a free trade agreement with the United States (US) on July 11, 2007, an occasion marked by non-violent protests by approximately 400 "leftists and farmers opposed to the deal," according to a July 12, 2007 Associated Press (AP) report. The agreement was approved by an overwhelming majority, 58-3.

If anything, the protest highlighted the growing divide in the Latin American region between lower and upper income segments of the population.

Panama's economy is widely reported as "booming" and the plot of Panama's Index of Economic Activity on the graph above shows a steeply ascending trend line--though not as steeply ascending as in a Market: Latin America review of the same index in a "Trendwatch" in the June 2006 edition (14:6).

A second observation when comparing the two analyses is that the volatility of the Index of Economic Activity has increased. This is not a good sign since a market's predictability is an normally important consideration for investors. With Panama, however, investors seem principally concerned with the benefits from the scheduled improvements to the Panama Canal.

On June 20, 2007, The Economist (London) said, "Prospects are extremely positive for the next two years, given ongoing private investment and planned public infrastructure investment, particularly in the mega project to expand the Panama Canal." The magazine reported that annualized first quarter 2007 growth of the Panamanian economy was 9.4 percent.

The Economist as well reported that retail grew at 5.0 percent in the first quarter 2007, an indication of the strength of Panama's urban consumer sector.

The International Monetary Fund (IMF) estimates that GDP growth for 2007 will be 6.6 percent, and in 2008 will be 6.8 percent.

Unquestionably, the widening of the Canal and the growth in fees that will accrue from increased traffic will enhance Panama's macroeconomic position. But the growth will also strain the country's infrastructure, and it is far from clear that the government will be able to afford improvements in that sector--let alone the cost of developing the country's human capital.

There is also some danger that the government is prepared to resort to non-standard reporting of economic indicators.

A July 7, 2007 posting on The Panama News website, an aggregator of reports about the country, questioned the release of unemployment statistics from the Panama Comptroller General, which put the current unemployment rate at 7.3 percent. The website said, "Economists for many years have claimed that the official method of counting the unemployed, based on a sampling of households, understates joblessness by several percentage points."

Nonetheless, on June 14, 2007, a reporter from the South Florida Sun-Sentinel (Fort Lauderdale, FL USA) visited Panama City and marveled at the amount of new construction as "building cranes crowd the horizon."

In addition, The Auto Distributors Association of Panama reported that new car sales for the first five months of 2007 were up approximately 30 percent when compared with the same period in 2006. Most cars we bought either for cash or were leased.

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