The Governor of the Central Bank of the Dominican Republic (BCRD), Héctor Valdez Albizu, announced that the preliminary results of the economy’s performance in the first half of the current year revealed a growth of 13.3%.
“According to the updated estimates of the monthly economic activity indicator (IMAE), the Dominican economy registered in the month of June a remarkable inter-annual expansion of 12.7 %, accumulating 13.3 % growth during the first six months of 2021, surpassing the expectations of what we had projected for the closing of the first half of 2021. This result corresponds to the inter-annual variation of 3.1% in the January-March quarter and 25.4% in April-June of this year,” Valdez Albizu said.
Through a virtual press conference addressed to the nation’s media, economic agents and the general public, the governor pointed out that, “when using 2019 as a reference and comparing the IMAE of June 2021 with the pre-pandemic period of June 2019, a real increase of 4.7 % is observed in said month.” “These results reflect, my friends, that the process of recovery of aggregate demand is increasingly taking hold,” he indicated.
With respect to the forecasts for the end of 2021, Valdez Albizu reported that, according to forecast models, growth for the close of 2021 was expected to be between 8.0 % and 9.0 %. “However, the faster than expected recovery allows us to update the projection upwards to a range between 9.0% and 10.0%, that is, we would be with an expansion of the economy around a double-digit figure,” he announced.
When analyzing the detail of the behavior of the economic growth in the first semester of 2021, it is verified that the economic activities that registered the most significant inter-annual expansions with respect to the year 2020 were: construction (42.2 %), free zones (31.7 %), local manufacturing (14.3 %), transportation and storage (13.7 %), mining (11.4 %) and commerce (10.7 %). Similarly, positive inter-annual variations were observed in: energy and water (3.9 %), communications (3.5 %), hotels, bars and restaurants (2.9 %), agriculture and livestock (2.4 %), real estate and rental activities (2.2 %) and other service activities (1.0 %).
As for construction, at the end of the first half of the year 2021, activity increased by 42.2 %, in line with the 21.5 % increase in January-March and 70.9 % in April-June. “It is appropriate to point out that the performance of construction is reflected in the dynamism observed in the local sales volumes of the main inputs of this industry, such as cement, rebar and metal structures, among other materials,” Valdez Albizu said.
The Dominican economy registered in the month of June, according to the IMAE, a notable inter-annual expansion of 12.7%.
The Dominican economy registered in June, according to the IMAE, a remarkable inter-annual expansion of 12.7%.
Likewise, it considered important to highlight the acceleration experienced by the commerce sector, showing an inter-annual variation of 17.4 % in the April-June quarter, higher than the 4.3 % of January-March of this year, which reflects the greater flow of production of local and imported goods in the economy associated with the rebound of private consumption.
The performance of manufacturing activity has been truly remarkable in the first half of 2021, with a year-on-year increase of 31.7 % in the free trade zones and 14.3 % in local manufacturing. In this sense, the free zones have played a key role in the recovery trajectory of the Dominican economy in recent months, highlighting the levels of exports, which reached a total of US$3,456.5 million in the first half of 2021, US$843.4 million additional to what was registered in the same period of 2020, for an increase of 32.3 %.
In addition, this sector has managed to surpass the level of employment prior to the COVID-19 pandemic, implement initiatives to strengthen it, promote international trade, and contribute to the creation of more formal jobs.
The hotels, bars and restaurants activity continues on the road to recovery, registering a 133.5 % year-on-year increase in its aggregate value for the April-June 2021 quarter. This performance reflects the higher international traffic of non-resident passengers visiting the Dominican Republic, which in the month of June reached 462,536 tourists, which corresponds to approximately 80 % compared to the same month of 2019, which is an extraordinary achievement.
“We make the comparison with respect to 2019 due to the fact that in 2020 the airports remained closed in that month. It has been reflecting a sustained trend towards the reactivation of the sector, much faster than expected. This pace would be further strengthened by the recent resumption of flights.
In cumulative terms, during the period January-June 2021 the total flow of tourists was close to 1.9 million, which means a growth of 36.1%, with the arrival of 503,553 additional passengers compared to the same semester of the previous year, so it is projected that the total number of non-resident visitors could be around 4.0 million by the end of this year.
The dynamism exhibited in the arrival of non-resident passengers is largely due to the combination of the strategies implemented by the Tourism Cabinet headed by the President of the Republic, Luis Abinader, together with the Minister of Tourism, in close collaboration with the private sector, with the objective of strengthening this industry of high importance for the Dominican economy and consolidating the country as the main destination of the insular Caribbean.
Monetary policy and inflation
The faster than expected economic recovery has been supported by the significant monetary stimulus plan, of approximately 5% of GDP, implemented by the Central Bank since the beginning of the pandemic. The monetary policy rate has remained at its historical low of 3.00 %, following a 150 basis point decrease during 2020.
Through the program of liquidity provision in national currency, some RD$215 billion has been channeled to the private sector, through the use of repurchase agreements, reduction of legal reserve requirements and the rapid liquidity facility.
“I must inform economic agents that these facilities have already reached the maximum point of utilization, that is to say, all the resources for the sectors have already been disbursed. However, the Monetary Board authorized that only the recoveries of the credit lines be used for new financing”, he announced.
The main sectors that have benefited from the monetary easing measures have been commerce and MSMEs (RD$91,684 million), households (RD$32,935 million), manufacturing (RD$24,281 million), construction (RD$18,776 million) and exports (RD$6,821 million), among others. Through the various facilities made available to financial intermediaries, some 92,000 new loans, refinancing and debt restructurings have been granted under more favorable conditions for companies and households.
Likewise, credit to the private sector in local currency has maintained its dynamism, growing above 8.0 % year-on-year at the end of June, continuing as one of the highest expansions in Latin America and significantly higher than the regional average of private loans of 3.0 %.
Despite the impact on commodity prices and distortions in supply chains, container costs and global freight, as has been occurring in the rest of the countries, a decrease in international prices of some agricultural goods has been observed since the highs reached in May, such as corn, which has fallen 27.8 %; while wheat and soybeans have decreased by 11.4 % and 15.8 %, respectively. These lower external prices, together with the good performance of domestic agricultural production, should contribute to attenuate inflationary pressures at the domestic level.
Year-on-year inflation has begun to moderate from 10.48 % in May to 9.32 % in June. Going forward, the Central Bank’s forecasting system indicates that inflation will continue to converge to the target range of 4.0 % ± 1.0 %, over the monetary policy horizon.
The external sector continues to recover strongly. Total exports of goods during the first half of 2021 reached US$5,993.4, which represents an inter-annual growth of 26.2 % equivalent to US$1,245.0 million, mainly explained by the 32.3 % increase in exports from free trade zones (US$843.4 million) where tobacco manufactures, jewelry and textile confections were the items that showed the best performance.
Similarly, there was an 18.8% increase (US$401.6 million) in national exports, led by the mining sector with an increase of 23.1%, with gold and ferronickel standing out in this sector.
Remittances maintained an extraordinary dynamism, reaching US$5,263.1 million for the January-June period, exhibiting a growth of 51.5 %, for an increase of US$1,788.2 million with respect to the same period last year.
In the first half of 2021, tourism revenues registered an increase of US$492.0 million, reaching US$2,145.8 million, for a year-on-year growth of 29.7 %, a clear indicator of the recovery currently being experienced by the sector.
As for imports, in the January-June semester, they grew by 36.8 % year-on-year, among which non-oil imports increased by 31.6 %, showing a reactivated demand for inputs for the production of goods and services.
In the month of June alone, total imports grew 70.4% with respect to the same period in 2020, of which non-oil imports increased 63.6%, in line with the behavior of domestic demand.
A strong sign of investor confidence in our country is that foreign direct investment, according to preliminary figures, reached US$1,617.5 million between January and June 2021, for a significant increase of 49.4% (US$534.5 million) over the same period in 2020.
The improvement in foreign currency inflows has contributed to exchange rate stability, such that at the end of June the Dominican peso showed an appreciation of 2.1 %, contrary to most Latin American countries. Likewise, the increase in the flow of foreign exchange has allowed the accumulation of international reserves, which reached the historical figure of US$12,611.6 million at the end of June, equivalent to 7.2 months of imports and 14.4% of the GDP.
It is important to highlight that the recovery of the economic activity has been reflected in the dynamism of tax collections, which registered an inter-annual increase of approximately 43% at the end of the first half of the year, reaching more than RD$80 billion above the amount stipulated in the National Budget. Likewise, the expected reactivation of capital spending during the second half of the year will contribute to the favorable economic growth outlook for this year.