IMAE must reach 5.2% to achieve the 3% target

The decision of the Government’s economic team to lower the growth estimate of the Dominican economy this year to 3%, through the Macroeconomic Panorama 2023-2027, continues to be ambitious, because to achieve this goal, the Monthly Economic Activity Indicator (IMAE) would have to show at least 5.2% for the remainder of this year month by month.

So far in 2023, July is the month in which the highest growth has been registered and it was only 2.9%, while in the months of the first half of the year it ranged between 0.1% and 2.4%.

For this reason, in January-July the economy measured by the gross domestic product (GDP) marks a reduced 1.4%, practically a quarter of the 5.5% by which it had grown during the same period of 2022.

Initially the growth target was 4.2%, then it was reduced to 4% and now to 3%. But the question arises: will the country’s productive activities become sufficiently dynamic for the economy to reach 3% by the end of 2023?

The answer is difficult, given the growth rate of the first seven months. In fact, for the final average to reach 3%, between August and December the average monthly growth would have to be at least 5.2%, as shown in the graph.

Background

The Macroeconomic Outlook report is prepared in coordination between the Central Bank and the Ministries of Finance and Economy, Planning and Development. According to Central Bank statistics, during the last 15 years, growth has rarely been below 3%. It was the case in 2009 when it marked 0.9%, due to the impact of the real estate crisis in the United States and its subsequent effect in Europe.

In 2012 it also grew less than 3% (2.7%), although in the following years it recovered significantly only to be interrupted by the covid-19 pandemic that forced the stoppage of productive activities in 2020 and so the economy declined by -6.7%.

Thereafter, the economic recovery process has been remarkable, but due to the impact of international inflation on local goods and services, the monetary authorities were forced to take restrictive measures of increasing the cost of money (interest rates) and other actions that held back domestic consumption and growth.

Since May, the monetary authorities have reversed the restrictive measures, after having stabilized the inflation indicator to its target range of 4%+/-1%, but although the monetary policy rate (TPM) has been reduced by 75 basis points and no less than DR$110,000 million of liquidity has been placed to the banks to be lent at reduced interest rates, growth still remains unabated and is at 1.4%.

Professional economic analysts have expressed that the decision to lower the growth projection to 3% was correct, but given the pace of the IMAE so far this year, the effect of the economic stimulus would have to be too high for that goal to be reached.

Even, taking 2012 as a reference, for the January-July period it showed a cumulative growth of 3.4%, but ended below that at the end of the year (2.7%).

Something similar happened last year, when in January-July growth was 5.5%, but at the end of the year it was 4.9%, that is, less than what had been accumulated in the first seven months. What is the possibility that this year will be different and the growth of the remaining five months of the year will be so high that it will allow reaching a closing of 3%, which would be more than double what has been accumulated in January-July?

Central Bank authorities maintain the hope that the effects of the economic stimulus measures implemented since the end of May will begin to be felt as of August in greater proportion than what was shown in July where it only grew 2.9%.

“It is expected that these (stimulus) measures will continue to contribute to the dynamism of consumption and investment in activities with a broad multiplier effect on economic activity,” the Central Bank said in a statement.

Impact of mining on economic growth

Barrick Pueblo Viejo complex. | External source.
Last July, when the economy grew 2.9%, a certain dynamism was registered in almost all services and productive activities, except in two: Education -3.7% and mining -22.1%.

As for the accumulated growth in January-July, there are other sectors with negative growth (Education -2.1%, Commerce -0.5%, Construction -1.9%, Free Trade Zones -1.5%, Local Industry -3% and Mining -12.6%). In both cases, July and the first seven months of the year, mining and quarrying is the most affected sector with a deep decrease, which makes us understand that its impact on the economy is of vital importance, because if it were to show a positive growth, the IMAE indicator would certainly be higher.

It remains to wait for the data from August to December, where an extraordinary and constant growth would have to be recorded to achieve the 3% target set by the economic team.

Source: Eldinero.com

Advertisements
author avatar
Dominican Republic Live Editor

Leave a Reply

Your email address will not be published. Required fields are marked *

seven + sixteen =

Verified by MonsterInsights