Santo Domingo.- The Dominican Republic experienced a slowdown in its economic activity in the first half of 2023, with only a 1.2% accumulated growth rate. This is a significant drop from the 5.6% average seen during the same period last year.
In June, the Monthly Interannual Indicator of Economic Activity (IMAE) only showed a slight increase of 0.1%. Despite this, the government remains optimistic about the future, attributing the expected economic recovery to the implementation of monetary stimulus measures by the Central Bank of the Dominican Republic and increased public investment.
However, global uncertainties are heightened by the US Federal Reserve’s interest rate decisions. Jerome Powell, chairman of the Federal Reserve, stated that the central bank will continue to raise rates until inflation is effectively controlled. However, he hinted at the possibility of halting rate hikes in the future.
“We are prepared to continue raising rates as necessary and intend to remain tight until we have confidence in a sustained decline in inflation toward our target,” Powell said during an annual meeting of central bankers.
In July, after a pause in June, the Federal Reserve resumed raising interest rates by 0.25 percentage points. As a result, rates now range between 5.25% and 5.5%, reaching their highest level since 2001.
In contrast, the Central Bank of the Dominican Republic has maintained its annual interest rate at 7.75% for two consecutive months. This follows a previous adjustment to 8.00% for a month and an extended period at 8.50%, all in an effort to curb inflationary pressures.
Taking international uncertainties into account, the central bank explained the halt in the interest rate cut cycle. With domestic inflation within the target range of 4.0% ± 1.0%, the bank acknowledged the impact of implemented monetary and fiscal policies, as well as the reduction of domestic demand pressures, in its latest monetary policy announcement.
Although the Dominican Republic’s economy has been applauded for its dynamism and resilience, the International Monetary Fund (IMF) revised its 2023 growth projection to 4%, and suggested measures like introducing a fiscal responsibility law, expanding the tax base, and reducing exemptions. Similarly, the World Bank reduced its growth forecast for the country from 4.8% in January to 4.1% in June.
Considering these forecasts, a consensus suggests that the nation’s growth could reach 3.9% in 2023 and 4.2% in 2024, making it a top performer in the region. Overall, Latin America and the Caribbean are projected to experience a growth rate of 1.6% in 2023, with a similar prediction for 2024, due to greater uncertainties related to global macrofinancial conditions.
