Recession? What Recession?

Michael Manville
www.panamaatyourservice.com
Michael is the author of the Panama 101 – E-Book Guide to Living and Investing in Panama.

I went driving around Panama over the last few weeks, keeping a keen eye out for signs of a recession. Would there be soup lines, street people, and muggers on every corner?

What I found instead was a thriving local economy full of people buying, selling, coming and going. I also found a lot of people who couldn’t care less about the stock market nor the Obama bail out plan.

Rural cities and towns in Panama like Las Tablas, David, Penonome and Santiago seemed bigger and busier than ever. Penonome was humming with shoppers, and traffic was all jammed up in mid-afternoon for no apparent reason.

Major hotels in Santiago and David were full or near full and even some of the run down accommodations were full (the Hotel Gran David in Santiago was my only option for one night, and I definitely do not recommend staying there if you can help it).

The curious part of the puzzle was that the hustle and bustle in the heart of Panama’s sparsely populated rural countryside does not appear to be driven by tourism. Panamanians themselves seemed to be filling up the clothing outlets, supermarkets, hotels, and construction supply stores.

New super-sized hardware stores, pharmacies and supermarkets have opened in both Santiago and David in recent years, all of which appeared to be thriving with Panamanian consumers. Only in Boquete did the foreign influence appear obvious with coffee shops and restaurants bursting at the seams with gringos.

The reality is that Panamanian spending habits do not depend on the performance of the Dow Jones or the S & P 500. Most Panamanians do not have stock portfolios and those who do tend to be so extravagantly wealthy that even a 50% decline in the value of stocks have very little effect on their daily lifestyle or local business investments.

In Panama City, construction rolls on full speed ahead. In addition to residential towers, commercial towers and hotel construction, Panamanians are also busy with one of several major public works projects like the Cinta Costera, the Panama Canal expansion, or the new airport in Pedasi (more about this project in future e-letters).

The point is that the wave of foreign investment that hit Panama is still cycling through the local economy. Ask a Panamanian how they have been affected by the global economic crisis and they will probably shrug their shoulders. The common worker in the developing world generally does not own stocks and were not buying ever larger homes with ever larger mortgages to impress the neighbors and justify their highly stressful “first-world” lifestyles.

Have pre-construction condo sales in Panama City hit a wall? Yes, probably. Are finished condos and homes in Panama still selling? Yes, if priced right. Are the folks in the Colon Free Zone overwhelmed with high inventories and a slowdown in activity? Quite likely, yes. Is a real estate crash just around the corner? Too early to tell for sure, but a correction will be healthy for the market. Can you find a hotel room in Panama City at the last minute? No, not unless you call every hotel at check out time and pray for an opening.

As mentioned in previous e-letters, it is likely that many buyers will not be able to pay the balance owed on many of the thousands of condos under construction in Panama City and developers may be left holding the bag. The results may very well lead Panama’s economy into recession along with the rest of the planet.

Will layoffs occur thus slowing the Panamanian economy? Probably. But Panamanians, unlike North Americans or Europeans, are used to getting by on very little. Those living in Panama’s rural communities are likely to be sheltered from the brunt of the global recession due to their reliance on only the basics – food, water, shelter and plenty of cerveza and seco on the weekends.

Retirees from abroad are still interested in Panama. Although real estate buying has slowed, interest levels have not. Foreigners still want to dream the dream and Panama is still high on many lists of affordable places to retire. The “boomer effect” whereby millions of retirees are considering their options for an affordable, laid-back lifestyle is just getting started.

While Panama City can and will feel the effects of the worldwide credit crisis, rural Panama is as pleasant and peaceful as ever, even if traffic jams have begun to strangle the ten square blocks that make up the quaint town of Penonome.