Mining Buoys Dominican Economic Growth to 2.8% in Quarter

The Dominican Republic’s economy accelerated in the second quarter as the opening of the country’s biggest mine boosted production in the Caribbean nation.

Gross domestic product expanded 2.8 percent in the quarter compared with 0.3 percent in the first three months. First half growth of 1.6 percent was buoyed by a 223 percent surge in mining activity, while financial services climbed 8.8 percent, the central bank reported today.

Economic growth is likely to slow to 2.8 percent this year from 4.5 percent in 2012 as policy makers attempt to keep inflation under control amid higher deficits, said Alejandro Arreaza, an analyst at Barclays. The Caribbean nation, which shares the island of Hispaniola with Haiti, has averaged 6 percent annual growth since 2004.

“We expect slower growth this year partly because of the tighter fiscal policy by the government and increased interest rate,” Arreaza said.

The government late last year raised the sales tax to 18 percent from 16 percent as part of policy changes to rein in a widening public sector deficit. Consumer prices rose 5.67 percent in July, the most since February 2012.

The central bank raised the overnight rate to 6.25 percent from 4.25 percent in August, the first increase since April 2011 and the biggest since establishing the rate in 2008. Policy makers held the rate at their meeting yesterday. Barclays cut the country to underweight from neutral on Sept. 27, citing the current account deficit and “erratic” monetary policy.

The $4 billion Pueblo Viejo mine, operated by Barrick Gold Corp. (ABX) and Goldcorp Inc. (G) has helped boost Dominican exports since beginning commercial production this year. The project, 60 miles (97 kilometers) north of the capital of Santo Domingo, could produce as many as 1 million ounces of gold next year, the government has said.

To contact the reporter on this story: Eric Sabo in Panama City at esabo1@bloomberg.net

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net

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