Panama, located at the southernmost tip of Central America, is bordered by the Pacific Ocean and the Caribbean Sea. The tropical climate and abundance of resources in the region have attracted settlement in Panama from Central as well as North America. According to the CIA estimates, Panama had a sizeable population of 3,360,474 in 2009. With a dollarized, free flowing economy, Panama has become an international hub of business. Panama’s economy is one of the fastest growing economies in Central America, with a well developed service industry that accounts for 80% of Panama’s GDP.
Panama Economy: Overview
Panama is one of the few nations in Latin America that experienced growth in 2009. Economic growth is expected to continue being bolstered by the Panama Canal expansion project, which was commenced in 2007 and is expected to end by 2014. The total cost of the project is estimated at $5.3 billion, which is approximately 25% of Panama’s current GDP. The growth of the economy during 2009 is presented in the chart below:
Although Panama’s economy is growing significantly, the income distribution is significantly lopsided. The CIA reported that over 28% of the nation’s population lived below the poverty line in 2009. Besides, the nation had a considerably high unemployment rate of 7.1% during the same year.
Panama Economy and Inflation
Panama’s economy experienced significant inflationary pressures for a large part of 2008. The rate of inflation in Panama averaged 8.7% during 2008, which was more than two times the inflation level seen in 2007. In addition, inflation reached a historic high of 10% during September 2008.
The global economic downturn has had a positive impact on the inflation in Panama economy. Declining oil prices during the recession helped to curtail the inflationary pressures during the latter part of 2008, given that Panama is an important oil importer. In fact, by January 2009, the nation experienced deflation, with the inflation rate declining to 4.9%.