Central Bank says Dominican economy grew 5.7% in January-March 2019

MAY 2019

Indicates that the construction sector was one of the fastest growing

The governor of the Central Bank of the Dominican Republic (BCRD), Héctor Valdez Albizu, announced that the Dominican Republic registered a real gross domestic product (GDP) growth of 5.7%, during the January-March 2019 period, surpassing the available figures for Panama (3.7%), Honduras (2.8%), Guatemala (2.7%), Colombia (2.6%), El Salvador (2.4%), Costa Rica (2.2%) and the rest of the Latin American economies, which grew below 2.0%.

He highlighted that the sectors with greater growth for this period were: Construction (12.5%), Energy and Water (11.7%), Financial Intermediation (9.5%), Mining (6.3%), Transportation and Storage (6.2%), Public Administration (5.7%), Hotels, Bars and Restaurants (5.0%), Other Service Activities (5.2%), among others.

Speaking at the opening of the 4th Caribbean Finance and Investment Forum, organized by Latin Finance, Valdez Albizu pointed out that, faced with an increasingly complex international environment, the Dominican Republic has managed to remain the leader in Latin America’s economic performance, based on the strength of its macroeconomic fundamentals. He highlighted that last year registered a growth of 7.0% and an inflation of only 1.17%, and that during the period 2013-2018 the average annual growth of GDP was 6.3% with an average annual inflation of 2.48%.

He also stated that the implementation of coordinated economic policies, such as the inflation target scheme adopted by the Central Bank in 2012 and the fiscal consolidation begun in 2013, in addition to more favorable exchange terms, helped to reduce to reasonable levels the twin deficits, i.e. the fiscal and current account deficits of the Balance of Payments, strengthening the resilience of the economy to avoid internal and external shocks. He indicated that this combined with the substantial increase in international reserves and the relative stability of the exchange rate, are elements that have positively influenced collective welfare, exhibited in the improvement of social indicators.

Accumulated inflation to the first quarter of 0.86%

Regarding inflation, Valdez Albizu pointed out that this economic growth has been achieved preserving price stability, so that the accumulated inflation in the first quarter of 2019 was of 0.86%, less than 1%; while the inter-annual inflation, measured from March 2018 to March 2019, was at 1.47%, below the lower limit of the target range of 4.0% +/- 1.0%.

Investment and tourism as driving elements

The governor of the BCRD reported that investment, mainly of private origin, has grown more than 10% for six consecutive quarters. He also highlighted the significant role of tourism, which exhibits a hotel occupancy rate of 85.4% at the end of the first quarter of this year, with more than 80,000 rooms of tourist accommodation, without adding the nearly 5,000 units that will be incorporated with new hotel projects announced, representing the largest accommodation capacity in Central America and the Insular Caribbean.

A strengthened external sector

In the first quarter of 2019, said the BCRD governor, the current account of the Balance of Payments presented a surplus of US$241.7 million, and foreign exchange income from exports of goods, tourism, remittances, foreign direct investment and other services amounted to some US$7.8 billion, representing an additional US$600 million over 2018.

Valdez Albizu reported that foreign direct investment reached US$803.7 million in January-March 2019, an extraordinary increase of 28.2% over the first quarter of 2018, mainly channeled to the communications, tourism and real estate sectors, reaffirming that we are an attractive destination and leader in this line in Central America and the Caribbean in recent years.

The lowest depreciation in the last four years in this period

The Governor of the BCRD highlighted in the international forum, the exchange stability reflected in the real exchange rate aligned with macroeconomic fundamentals and a nominal accumulated depreciation as of March 29, 2019 of 0.5% with respect to December 31, 2018, the lowest depreciation in this period for the last four years, with an exchange rate of RD$50.55/US$. He added that the upcoming implementation of the Central Bank’s electronic foreign exchange trading platform will offer a transparent mechanism to improve price formation and optimize the execution of foreign exchange operations.

More formal jobs and poverty reduction

In terms of job creation, the governor noted that the prolonged period of growth of our economy has had a very positive impact on the labor market. Recent data from the Central Bank’s Continuous National Workforce Survey show that 155,848 net new jobs have been created in the last 12 months, reaching the total of new jobs from October 2012 to March 2019, an additional 823,389 workers, an unprecedented figure in the country.

Another excellent piece of news is that approximately 80% of the jobs generated in the last year are formal, defined as those who have access to social security via their occupation. The rate of total informality of the economy fell from 57.8% to 55.6% in the last 12 months, said Valdez Albizu at the international forum on finance and investment in the Caribbean.

Valdez Albizu also pointed out that, according to ECLAC data, the Dominican Republic, together with Chile, Panama and Uruguay, are the countries with the greatest reduction in monetary poverty in recent years. In this regard, he pointed out that the country’s overall poverty went from 39.7% in 2012 to 22.8% at the end of 2018, which is equivalent to approximately 1.5 million Dominicans managed to escape the poverty line in the last six years.

Regarding inequality, he said that the Dominican Republic showed a substantial improvement in this indicator, occupying in 2017 the fourth place of 17 Latin American countries with the lowest level of inequality, reporting a Gini coefficient of 0.438 in that year.

Good prospects for the Dominican economy in 2019

The governor of the BCRD announced that the institution foresees that, driven mainly by investment and private consumption, the Dominican economy will grow above 5.5%, above its potential, while inflation will be around the lower limit of the target range of 4.0% ± 1.0% in 2019. Without a doubt, these low inflationary pressures present ample degrees of freedom to opportunely stimulate our economy, in case of materializing risks of the international environment or before any shock that affects the expectations of economic agents, he explained.

Regarding the external sector, a current account deficit of -1.5% of GDP is expected by the end of 2019, well below its historical average, pointing to projections that the Dominican economy could be generating some US$30,700.0 million, he said.

The governor of the BCRD concluded his speech saying: I want to leave in the minds of all, that in the Central Bank we are convinced that macroeconomic stability will be maintained, as has happened in the past even in the context of an electoral process. In this sense, we reaffirm our unavoidable commitment to the constitutional and legal mandate to preserve price stability.

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