2024 was better than expected, but 2025 will be full of challenges
The economy in 2024 performed better than initially expected. A preliminary estimate put growth at a rate very close to potential growth of 5%, due to significant investment expansion (7.5% y/y in January-September 2024) and exports (5.1% y/y in January-September 2024). Inflation was 3.35%, close to the lower limit of the 4±1% annual target range.
Managing monetary policy has been the biggest 2024 macroeconomic challenge. Although the monetary policy rate was cut 100 bps throughout 2024, bank interest rates kept rising. The interannual depreciation of the average exchange rate was the second largest in the decade (6.1%), after the one in 2020 (10.1%), though the Central Bank's net international reserves fell by $ -2.1 billion.
The central government deficit closed 2024 at DOP -217.7 billion, equivalent to approximately -2.9% of GDP, slightly lower than the deficit goal of -3% of GDP established in the 2024 budget.
This year will be full of challenges and uncertainties, associated with the direction of the policies to be adopted by the incoming Trump administration, and their impact on the global economy. The Fed’s decisions will continue to condition the Central Bank's stance toward reducing the monetary policy rate, and expansion of credit to the private sector. On the other hand, the Dominican Republic’s unilateral decision to impose tariffs on rice imports within the DR-CAFTA opens the door to future trade retaliation by the United States, which would have repercussions on the trade of DR goods within the DR-CAFTA.
On the fiscal side, the government must intensify its efforts to increase collection efficiency, and to reduce evasion within the current legal framework, given its decision not to move forward with negotiation of the tax reform.
For 2025, we project economic growth of 4.4%, and inflation within the target range of 4± 1%. The expected currency depreciation is 4.6%, although that could oscillate within a 3.4% to 6.1% range. The current account deficit is projected to increase slightly, from -3.4% projected for 2024 to -3.6% in 2025. Although the government deficit is projected at -3% of GDP, there are upside risks, if measures to rationalize spending and increase collections administratively turn out to be less effective than expected.
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