The fiscal sustainability of economies, the negative impact on tourism and remittances, the increase in eCommerce and weak consumer confidence are the main macroeconomic trends to be lived in Panama in 2021. However, there are indications that the Central American country is in a position to rebound without an exorbitant amount of difficulty. Randall Castillo Ortega, an entrepreneur and the founder of RACO Investment serving small- and medium-sized businesses in Panama and Costa Rica, provides insight into how 2021 is going to bring growth for Panama’s commercial landscape.
Analyzing the most relevant trends around the world from the consumer’s approach, and providing information on economic issues for customers, it is possible to ascertain what is in store for Panama this year. By reviewing key economic indicators, along with an analysis of the aggregated and anonymous sales activity, eCommerce tied to digital acceleration, as well as economic and risk travel and policies, the picture begins to come into focus.
2020 was a test for everyone; we have become more socially distanced, homely and more digital. We made a spectacular digital leap and saw a high level of resilience from small businesses and consumers. Adds Castillo, “2021 will not bring life back before COVID-19, albeit with the distribution of the planned virus vaccine, we expect a gradual, but choppy recovery marked by the benefits of adopting digital solutions and reducing contact experiences.”
It is expected that there will be a double impact due to the slowdown in international tourism and a drop in remittance flows that will impact growth, especially for many of the region’s small economies positioned abroad. As the world redirects international tourists to more local destinations, others, such as Mexico, Central America and the Caribbean, will be very exposed to the fall of international tourism because, historically, they have had the highest rates of tourism in the region. Asserts Castillo, “Global labor restrictions will impact workers abroad and remittances they send to their homes. Specifically, there will be reductions in remittances of workers and families abroad, from 1.5 to 3% of total GDP in many Latin American countries and, in the Caribbean, the impact is double-digit.”
On the other hand, eCommerce spending has increased from about 10% to 16%, at its peak, compared to its levels before the crisis. While the adoption of eCommerce in Latin America and the Caribbean has been lower compared to other regions, it is now expected that between 20 and 30% of the increase in COVID-19-related eCommerce will be permanent in terms of their share of overall retail spending. In particular, the adoption of financial services provided through online channels and other digital services are growing in popularity among the lower-income demographic, which is likely to persist during 2021.
Consumer confidence remains weak due to high concerns about the virus and the economy, but growth will be driven by fiscal stimulus and the evolution of the vaccine outbreak. Inflation in the region has been contained, but pockets of risk persist, as higher inflation remains a risk to consumption in 2021.
Based on what is forecast for the US and other parts of the world, business creation is likely to be limited to those selling products online. This is due to uncertain demand, currency movements, tighter credit conditions, and travel and entertainment challenges challenging new physical businesses. Meanwhile, online business creation continues to gain momentum as other companies formalize to leverage government programs.
Finally, savings and fiscal approaches vary between Latin American countries, which creates varying degrees of risk and a plurality of potential outcomes. “An economy’s ability to continue recovering in 2021 will depend to a large extent on governments being able to provide fiscal stimulus while staying on track to repay their debt in the long run,” asserts Castillo.