SANTO DOMINGO - Should the conflict between the United States and Iran, which appeared to have stopped yesterday, Tuesday, with an apparent "ceasefire" between Iran and Israel, continue, construction costs in the Dominican Republic could experience a significant increase , directly affecting companies' profit margins and halting the development of new projects.
This was warned by economist Francisco Tavárez, who explained that between 30% and 40% of the construction materials used in the country are imported, and many of them depend on the price of oil and other raw materials in international markets.
“Such an impact on costs would increase inflation, especially in the prices of petroleum-derived materials (asphalt, plastics, etc.),” said the professor at the Autonomous University of Santo Domingo (UASD), in statements to El Inmobiliario.
In addition to the impact on the construction sector —which represents between 12% and 14% of the Gross Domestic Product (GDP)—, Tavárez pointed out that there would be a generalized inflationary pressure that would also affect the costs of transportation, electricity and imported goods, deteriorating the purchasing power of consumers and making mortgage loans more expensive.
According to his estimates, for every dollar the price of a barrel of oil (WTI) rises, the Dominican Republic's oil bill increases by approximately US$46.4 million. "If the price of oil were to increase by between US$30 and US$40 per barrel, oil imports would rise from US$1.391 billion to US$1.855 billion," he stated.
Regarding the monetary and fiscal effects, the professional warned that a more intense increase in demand for dollars due to higher oil prices would affect the exchange rate, increasing the demand for foreign currency and depreciating the Dominican peso, further increasing the cost of imported inputs and affecting stability .
He also pointed out that a possible intervention by the Central Bank would mean an increase in interest rates to contain inflation, which would raise the cost of financing for construction projects and reduce the demand for new housing.
Tax plan
On the fiscal front, the Dominican government would find itself needing to redirect resources towards subsidies for fuels and strategic products, which would lead to "less public investment, less capacity for growth and dynamism of the economy," he stressed.
However, Tavárez also highlighted opportunities for mitigation in the face of this adverse scenario. Among these, he mentioned import substitution with domestic materials such as locally produced cement, and accelerating the transition to renewable energy. He also suggested that the government prioritize resilient to maintain the sector's dynamism in the face of a possible global recession.
“It is crucial that the government continues to monitor global prices and, if necessary, intervene with international reserves to cushion external shocks, while accelerating the transition to alternative energies,” he concluded.
