FROM THE ECONOMIST INTELLIGENCE UNIT

Outlook for 2009-10

Mr Fernandez's position will weaken amid growing discontent over corruption and sharply deteriorating economic conditions, raising the prospect of increased protests and unrest in 2009-10.The PLD's legislative programme will focus on plans to stimulate the economy and push through long-delayed constitutional reforms before the mid-term elections in 2010 begin to dominate politics.The administration’s ability to meet its macroeconomic and fiscal policy goals will be limited by a severe economic downturn and structural weaknesses in the government's accounts.Tight financing conditions will mean government spending cuts in 2009, reducing the central government deficit to 2% of GDP, but lifting public debt to 43% of GDP. The deficit will stay at 2% in 2010.Given the collapse in global trade since end-2008, the deepening US recession and a sharper forecast contraction in consumption, we now expect GDP to contract by 2.5% in 2009. Recovery will be slow as GDP grows by 1.8% in 2010.Annual inflation will continue to fall through the first half of 2009, but will end the year at 5.7% as the peso depreciates. It will average 7.3% in 2010.Risks to our projection of a weakening of the currency in the outlook period are weighted on the downside, given the magnitude of the Dominican Republic's external financing requirement and adverse global conditions.As import costs decline on the back of lower oil prices in 2009 we forecast a reduction in the current-account deficit to 4.2% of GDP. Weak export earnings and stronger import prices in 2010 will lead to a deficit of 5.9% of GDP.

Monthly review

Demonstrations orchestrated by the Colegio Medico Dominicano (CMD, Dominican Medical Association) on the part of public healthcare employees have gained momentum and are presenting difficulties for the government.The constitutional reform process is underway, but instead of focusing on presidential re-election and executive powers, certain subsidiary themes such as religion, abortion, and women’s rights have been the focus for debate.In April the Central Bank cut its benchmark interest rates for the fourth time in as many months (to 5%), in the hopes of spurring private lending.Unemployment is rising. Around 5,000 workers have been laid off in the first three months of the year in free-zone and cigar manufacturing.Tourism is feeling the crunch. The number of tourist arrivals dropped by 5% year on year in January-March 2009, the peak tourist period.