UBS sees Panama’s economy growing more than 5% in 2026, led by Canal and domestic consumption

Panama’s economy is showing signs of acceleration, with UBS projecting gross domestic product growth of more than 5% for 2026 after a 5.5% expansion in the first half of the year.

The financial firm’s report, titled "Panama: Let the good times roll", identified household consumption, a construction rebound, tourism and increased Panama Canal revenue as the main drivers. Canal income benefited from the reordering of international maritime trade routes, according to UBS strategists Alberto Rojas and Alejo Czerwonko.

The report also pointed to an improvement in Panama’s fiscal position. The cumulative four-quarter fiscal deficit fell to 3.3% of GDP in the second quarter of 2026, down from a peak of 6.4% in the first quarter of 2025. UBS attributed the reduction to adjustments in current and capital spending, along with a slight increase in tax revenue.

The primary deficit declined to 0.3% of GDP, moving toward the Economy and Finance Ministry’s goal of recording a primary surplus by the end of the period. Gross public debt stabilized between 65% and 67% of GDP, a level UBS said supported Panama’s retention of investment-grade status.

The dollarized banking system has also remained liquid. Private-sector deposits have increased by between $5 billion and $6 billion annually since 2024. However, local credit growth has remained moderate because banks have directed more liquidity toward overseas financial investments attracted by global interest rates rather than expanding domestic lending.

UBS said President José Raúl Mulino’s popularity had dropped below 20%, amid public perceptions that the benefits of growth were distributed unfairly and amid inflation. Even so, the report described governance as stable, noting that the administration had advanced reforms including changes to the Social Security Fund while governance risks remained contained.