Thursday, March 23, 2023

Dominican Republic lives “January” of lower growth, after 14 years

The Dominican economy recorded a notable slowdown at the beginning of this year, recording growth of just 0.4% in January, the second lowest level for that month in the last 14 years, according to official figures.

The Monthly Indicator of Economic Activity (IMAE) indicates that last January, although there were sectors with acceptable growth, others, such as construction (-11.5%), suffered decreases that impacted the slowdown at the beginning of this year.

But just because the economy didn’t grow in January doesn’t mean it will stay that way throughout the year. Even in January 2021 the decrease was -1.8%, but the full year ended with a rebound of 12.3%. Something opposite happened in 2022 when in January the economy grew 6.3%, but at the end of the full year it ended at 4.9%, that is, a lower proportion.

This indicates that the first month does not have a direct impact on growth for the entire year, although it does show that the monetary and fiscal authorities should apply measures to improve the situation.

official explanation

The Dominican Central Bank (BC) reported that the low growth in January is due to the moderation of the economic rhythm since the fourth quarter of 2022, “as was foreseeable”, associated with a slowdown in domestic demand, mainly investment due to the contraction in construction activity.

According to BC’s own statistics, during the past year construction barely grew 0.6%, while January of this year marked a drop of -11.5%.

Construction “continues to reflect an increase in the costs of the main inputs, such as cement, rods, paint, which caused an increase in housing prices,” adds the BC in an official statement.

Another factor of incidence in the fall of the construction sector is the readaptation of the schedules of the works due to the effect of higher interest rates in the financial market, in addition to the fact that “the execution of spending on public investment has been below the speed originally contemplated in the General State Budget”, indicates the institution.

Other sectors that started the year 2023 negatively are commerce, marking -0.7% in January, as well as mining with -2.8%. The local industry barely shows a 0.2% growth, as well as telecommunications with 0.7%, which indicates practically zero behavior.

The other sectors of the economy register moderate growth, with the exception of tourism, which registers 15.8% and was what allowed us to finish with a positive, although very low, average of 0.4% in the IMAE.

restrictive measures

The monetary authorities recognize that the deceleration of the economy is also due to the measures that were taken last year with the interest of containing the increase in inflation, such as the constant increases in the Monetary Policy Rate (TPM), which is currently at 8.5%.

However, as inflation has been easing in recent months, marking an interannual level of 6.38% in February of this year, it is possible that it will end within the programming of 4% plus or minus 1%, that is, between 3% and 5%, at the end of this year.

In this case, it is possible that the BC begins to relax its monetary policy measures in an attempt to inject some dynamism into the economy.

If inflation continues to subside, the economy will improve

The Central Bank considers that thanks to the containment of the inflationary effect, the macroeconomic conditions would be right for the beginning of the normalization of the monetary policy in the coming months.

“This should contribute to the year-on-year expansion of the economy gradually recovering,” he adds, referring to external organizations such as the International Monetary Fund (IMF), the World Bank and the Economic Commission for Latin America and the Caribbean ( ECLAC), place the country as one of the fastest growing in the region this year.


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