Panama’s economy is set to surge over the coming years, according to economists and US officials, owing in large part to the recent decision to expand the canal.

US Ambassador William Eaton spoke of the country’s ‘bright future’ during a speech given at a recent meeting with Panama officials, celebrating the October 22 referendum in which voters overwhelmingly approved the $5.2 billion canal expansion plan.

“Panama has had one of Latin America's fastest growing economies and low rates of inflation,” he pointed out, adding the country also held one of the region’s highest per capital levels of GDP.

“It’s no wonder that Panama continues to grow as a regional financial center and a hub for civil aviation and global commerce.”

The ambassador is hardly alone in anticipating the economic benefits of the landmark decision.

A study commissioned by the Panama Canal Authority (or ACP - the autonomous government body that runs the canal) showed not only would an expansion be beneficial to the country’s economy, but without it, the famous trade route would languish, losing its key market position in world shipping.

Without the expansion, which will add a third set of wider locks to ease congestion and accommodate the newer, larger vessels for transport, the Panama Canal was expected to hit its maximum capacity by just 2009. This would have stalled further growth, and added to the already long waiting lines at the locks ---driving business to other trade routes, such as the Suez Canal in Egypt.

“Without an expansion, the Canal would face new competitors as well as permanent and irreversible changes in trade patterns in which Panama would stop being relevant as a global maritime route,” concluded the ACP.

With the expansion, however, the country’s gross domestic product (GDP) is now expected to more than double by 2025, adding up to 50,000 direct and indirect jobs, and increasing business investment in the Canal Zone by 40 per cent.

Erick Campos, an analyst with Fitch Ratings (a leading global rating agency) also endorsed the expansion project, which if handled appropriately, he said, should have a ‘long-term, positive impact.”

Work on the canal is now set to begin in 2008, finishing in 2014.

In addition to the decision to modernize the 92-year-old canal, Ambassador Eaton pointed to a number of other positive indicators that signaled economic growth for the tiny Central American country.

“… I’m even more excited this year about Panama’s prospects,” enthused the American diplomat to the assembly. “And, it’s not simply because Panamanians have just taken a huge step forward by deciding to modernize the Panama Canal.”

Continuing low inflation, a stable dollar economy and the potential for a trade agreement with the United States bolster the economic picture in Panama, he stressed.

Ambassador Eaton also pointed to upcoming projects such as the 14 hydroelectric and thermal energy plants, and the announcement by Occidental earlier this year of a $6 billion regional refinery, which are expected to fuel growth and employment in some of the country’s poorer areas.