Panama’s construction sector to contract by 6% in 2020, says GlobalData

14 August 2020 (Last Updated August 14th, 2020 10:17)

Panama’s construction sector to contract by 6% in 2020, says GlobalData

On 11 August, Panama’s government announced it will allow work to resume on various construction projects and let more businesses reopen from 17 August, including retail stores, car dealers, beauty salons, and barber shops as part of its plan to gradually kickstart its economy.

The announcement, which was made by the Ministry of Health, Luis Sucre, came after a recent study revealed that the reproduction rate of Covid-19 in the country had dropped from 1.13 to 1.07 and the capacity of the healthcare system had increased.

Mr Sucre said that the government has granted permits for a total of 84 construction projects to restart operations, of which 69 are public works and the remaining 15 belongs to the private sector. Public projects include the construction of the Sixaola binational bridge between Panama and Costa Rica, the Toabré wind farm, the rehabilitation of the Bridge of the Americas that connects metro line two to the Tocumen airport, the expansion of the Arraiján-La Chorrera highway, the repair of the railway bridge over the Chagres river, the Tocumen airport expansion, the construction of the Pedregal-Gonzalillo highway and the rehabilitation of the trans-isthmic highway from Plaza Ágora to San Isidro.

Among the private investment projects are the Hospital Pacifica Salud in Costa del Este, the PH San Roque project and the Colegio Panamá in Costa Sur, and the Pacific Center.

But while the resumption of these works is expected to provide a boost to the sector and the wider economy in the second half of the year as the government authorises more permits for construction works and ease further restrictions, construction output will not return to its pre-pandemic levels until 2022.

GlobalData expects Panama’s construction sector to fall by 6% in 2020, following an increase of just 0.1% in 2019. However, a further downward revision is likely if a second wave of infections materialise and the government will be forced to slow or reverse its reopening plan. Before the pandemic, GlobalData expected the sector to recover to 5.3% in 2020 but given the stringent measures imposed by the government to control the spread of the virus, including shutting down all construction works since 21 March, the sector is expected to be severely hit this year.

Panama’s construction sector, which accounts for about 15% of the country’s economy and is the third largest generator of employment in the country, was already weakening before the pandemic started due to major strikes by construction workers of the Panama Canal project, which began in April 2018 and extended well into 2019.

According to the National Institute of Statistics and Census (INEC), construction activity fell by annual rate of 6.9% in the first quarter of 2020, after declining by 4.2% and 2.6% in the previous two quarters. Construction activity is estimated to have dropped sharply in the second quarter, in line with the steep decline in economic activity.

Latest data from INEC also showed that the Monthly Index of Economic Activity (IMAE) fell by 40.9% in May, following a contraction of 34.7% in April, with construction along with other key sectors, such as hotels, restaurants, air passenger transport, trade, manufacturing and mining, significantly contributing to the decline in economic activity.