A report by BofA Global Research, a service of BofA Securities, the investment banking division of Bank of America, predicts a 10% growth in Gross Domestic Product (GDP) for the Dominican Republic by 2021.
The study entitled “Dominican Republic, the weight of the evidence”, released on May 25th, improves previous scenarios of 7.9% for 2021 and 4.7% for 2022 (compared to 4.2%).
This stronger-than-expected growth, according to the study, is having multiple effects throughout the economy.
It highlights that tax revenues are above budget projections and the current account deficit is widening due to greater absorption.
GDP growth looks underestimated
“In our opinion, the market and analysts, in general, seem to be significantly underestimating the rate of GDP growth that the Dominican economy can achieve in 2021”, the report states.
It adds that, given the strong sequential expansion in the first quarter, 3.5% (seasonally adjusted by the Central Bank), he believes that there is a fairly large carry-over effect for the rest of the year.
In other words, if quarter-over-quarter growth is zero in the second, third, and fourth quarters, the annual growth for the entire year 2021 would be 8%.
However, BofA Global Research reports that institutions that forecast GDP expect much lower figures.
“The median of the Bloomberg survey is 5.1%, the BCRD (Central Bank) survey has 5.5% in its last reading (April), the IMF (International Monetary Fund) has just said that the 5, 5% in the press release that was produced throughout the completion of the Article IV report”, they point out.
Strong economic indicators
For GDP growth to be less than 8%, BofA Global Research considers, there would have to be at least a fairly significant quarterly contraction before the end of 2021.
“We believe that this is unlikely to happen. The coinciding and advanced economic data, such as remittances, imports, the manufacturing PMI (IMAM index of AIRD), among others, are coming mainly on the strong side”, they say.
In addition, it stands out that the monthly growth of non-resident tourists looks strong on the margin (41% in March, 24% in April) and the Minister of Tourism recently said at a conference in Europe that the improvement continued in May.
The publication highlights that the Dominican Republic is outperforming most Latin American countries in the deployment of vaccines, administering a relatively high number of doses per 100 people.
“Headwinds blowing from the US economy, strong local business sentiment, and expansionary monetary policy also support the economic outlook”, they state in the report.
BofA cites the increase in oil prices as an unfavorable aspect, given the net status of importer from the Dominican Republic.
“The fiscal deficit has been significantly reduced in 2021. In his speech last week, President Abinader mentioned that revenues are 24% above projections”, says the study.
Likewise, that the Ministry of Finance publishes a weekly report that shows that in the first four months of 2021 there was a primary surplus of 63,500 million euros (0.5% of GDP) and a global surplus of 23,400 million euros (1.3% of GDP). Income up 29.5% and expenses -0.9%.
They expect the government to reach a primary surplus of 1% of GDP by 2022, narrowly falling short of stabilizing public debt.