The decline in economic growth in the US is starting to make its impact felt on the Dominican Republic, with remittance growth slowing substantially during the first half of this year to 6.6%, compared to 13.9% during the same period a year earlier.
Measuring US$1.56bn during the first six months of 2008, we believe that remittances this year will struggle to substantially exceed last year's US$3.03bn figure. We believe that remittances could start to decline in 2009, as the impact of a US recession weighs on funds available for relatives to send home.
Not only will this negatively affect the Dominican Republic's current transfer balance, with the country's current account deficit set to widen to 11.9% of GDP in 2008 (from 6.1% in 2007), but we believe that real GDP growth will also suffer as a result, forecasting 3.4% growth in 2009.
Headline inflation in the Dominican Republic edged higher in December, bringing the end-year figure to 8.9% y-o-y, as food prices and energy costs translated into higher consumer prices.
Indeed, prices of food, non-alcoholic beverages and tobacco expanded by 8.8% y-o-y in December, up from 5.1% y-o-y in November and 5.8% during the same period a year earlier. The most remarkable upward trend, however, has been in transportation costs, with prices rising by an impressive 18.0% y-o-y, slightly down from a high of 19.2% y-o-y in November, and well above the 3.0% y-o-y increase in December 2006. We currently forecast inflation to average 7.4% y-o-y in 2008, and slow to 6.0% by year-end.
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