Panama

Panama's economic growth is expected to rebound gradually in 2025-2026, recovering from an estimated +2.5% in 2024 to an average of +3.5%. This growth will be supported by base effects following the closure of Cobre Panamá, the country’s second‑largest export source after the Canal, and investment in the construction sector. However, faster growth will be constrained by persistent challenges, including high unemployment, significant labor informality, increased repatriation and rising insecurity linked to illicit trafficking through the Darién Gap connecting Panama and South America. The short-term costs of migration in the current setting are estimated to total around 0.5% of GDP every year.

Panama’s strategic advantages – its location, openness to trade, ports and robust logistics sector – continue to underpin its diversified economy, with financial services remaining a key growth driver. Despite these strengths, fiscal pressures are mounting. Falling revenues and rising expenditures pushed Panama’s fiscal deficit to 7.1% of GDP in the first nine months of 2024, the highest on record, including during the pandemic. The full-year fiscal deficit is projected at 6% of GDP, though this figure is subject to uncertainty based on how much of the government’s large stock of arrears is settled and the outcomes of a tax amnesty. Debt is forecast to reach 63% of GDP, with interest payments consuming almost one-fifth of government revenues.

Public spending will play a diminished role in growth in 2025 due to planned budget cuts, though investment in major infrastructure projects will remain a key driver. Notable projects include a cable car system in San Miguelito, a railway line from Panama City to David, the expansion of the Panama City metro and the construction of a fourth bridge over the Panama Canal.

Panama experienced robust growth over the past two decades, driven by trade, services and large-scale investment projects, making it one of the world’s fastest-growing economies. Between 2001 and 2019, Panama’s growth averaged an impressive +6.1%, the highest in Latin America and the Caribbean. However, the country now faces increasing vulnerabilities to climate change. According to the World Bank, Panama ranks 14th among nations most exposed to multiple climate impacts, with weather-related challenges affecting the Panama Canal's operations, the balance between its agrifood sector and logistics and social stability. The Canal requires significant investment to prevent drought-related low water levels from disrupting ship transits.

Public protests may also interfere with Panama’s logistical reputation. In late 2023, a massive protest movement erupted over a newly enacted law regularizing the contract of a major copper mine, bringing the economy to a standstill. The scale and intensity of the protests, which occurred just months before the presidential election, highlighted the fragility of Panama’s social compact and deep public distrust in state institutions.