For many US expatriates, one of the most appealing aspects of transitioning to life in Panama is the fact that Panama does not print their own currency (Panama does mint their own coins, yet they maintain the same dimensions and composition as the United States equivalents), having been on the United States dollar since the early twentieth century. For much of Panama’s history this was a good thing, as a small country they did not need to spend the time and effort operating a central bank, and have been able to rely on the United States to influence macroeconomic policy and keep Panama’s economy stable. Unfortunately, these benefits are helpful only as long as they dollar stays a strong currency, and as the dollar continues to fall in the United States, consumer confidence in Panama ultimately follows it.
There have been several interesting blog posts discussing the impact of the dollar on Panama’s economy recently. One, by American expatriate Richard Detrich, discusses the rising prices of basic commodities such as cement in the expatriate enclave of Boquete.
“I asked the price of cement . . . $9 a bag!! When we started building our house it was $1.50 a bag!! And since cement is the primary ingredient of houses in Panama . . . WOW! My present home overlooking the Valley, the river and the 9th Hole of Valle Escondido Resort now looks like an even better deal!
And that’s just cement! The price of steel has soared as well, along with anything that has to be imported, which is just about everything. I predict the building boom is going to slow and you’ll see expats grabbing the existing housing that is for sale. It may not be exactly what you want, but with the increased cost of building . . . to say nothing of the hassle . . . it might be wise to settle for something that someone else designed and built!”
It’s definitely a scary prospect for anyone interested in building a new home in Panama. You can read Mr. Detrich’s full blog post here.
Another post, in a blog written by former US Congressman Bob Bauman, discusses the history of relationship between the United States and Panama, as well as the potential negative impacts of the weak dollar being reflected in Panama. Here is an excerpt from his post:
“Shielding from inflation may have been the dollar’s virtue in Panama in the past, but not any longer.
Panama consumer prices are being hit especially hard due to the continuning devaluation of the U.S. dollar and its depreciating purchasing power.
Until now Panama’s use of the dollar has been a blessing as it kept inflation low and the economy stable. Now with the dollars decline, Panama is feeling the negative side of this relationship in every sector.
According to the Panama Comptrollers office, the price of food has increased 17.2% over last year, and many saw it exceeds 20%. Consumer prices in Panama rose 0.8% in May, while 12-month inflation at the end of the month was 8.8% as consumers paid more for gasoline and food.”
You can read Mr. Bauman’s full post here.
Both articles provide some interesting insight into entanglement of Panama in the United States economy. While the short term outlook is looking increasingly dreary for both the United States and Panama, Panama’s real estate industry is still booming, economic growth is still strong, and the canal expansion should help to bring jobs and wealth to Panama in the future. Now just to weather the storm…
I am a foreing investor. I have just bought a 1 Bedroom condo (Under construction) in Costa del Este. I am hoping that when is ready I can rent this condo out. I am worry about my investment losing value due the global slowing down of the economy, specially in USA and Europe. Could you please provide me with some insides about the outlook of the economy in Panama in the next few years and in particular about the Real Estate Market.
Thanks!