Last minute update : the Panasonic 1.7/42.5mm is now down to $298 here. If you did not read my comparison article between the two lenses, check it here and see what a good bargain this Panasonic lens is

Panasonic 1.7/42.5mm vs Olympus 1.8/45mm

If you are serious about your photography and  looking to buy a mirrorless camera, you know you have to look at the whole system and not just which camera body you like the most or has the longest list of features. Chiefly, you have to look at which lenses you like which are currently available in that system (versus lenses just planned to appear sometime “down the line”). In this case, it is hard to deny the appeal of the Micro 4/3 system. This system was developed by both Panasonic and Olympus and today offers, by far, the largest selection of AF lenses developed for the system. You have both manufacturers plus a few Sigma lenses  and a few more “exotic” manual-focus-only lenses.
Today, the lens line-up pretty much covers the entire focal length range (except  a 150mm-300mm equivalent- in a single focal length sorely lacking in my opinion). Both Panasonic and Olympus have lenses that  vary greatly in size, weight , quality, price ..
The “standard” portrait lens has several options and,for a long while, the Olympus 1.8/45mm has been rightfully praised for its combination of tiny size/weight, good image quality and great value for the money. Panasonic had two similar offerings in terms of focal length (a 2.8/45mm macro lens and the Nocticron 1.2/45mm) but very different in terms of  max aperture, weight and price. A few months ago, Panasonic launched its third short portrait lens with the 1.7/42.5mm which,despite the slightly different focal length (more on this later), is the real competitor of the Olympus 45mm. Now to the Big question: which one is the best bang for your buck ? Which one  should you go for ?

Ergonomics
Let s start with what both lenses share : both lenses are very light made mostly of plastic but seems well made. the difference in weight is negligeable (116 grs for the olympus versus 130 grs for the Panasonic).The Panasonic is a tidy bit longer while the olympus is a little bit fattier. On both lenses, you can attach the hood backwards when not in use and if you do, the Olympus hood makes the lens even fattier than the Panasonic with the hood in the same position (another reason to prefer the Panasonic if you use a small bag). The Olympus lens design comprises 9 elements in 8 groups while the Panasonic has 10 elements in 8 groups. At launch, the Panasonic was a tad bit pricier than the Olympus even if part of the of the difference comes from the fact that the Panasonic comes with its hood while the olympus does not (Shame on you, Olympus !). Now the Panasonic is down to $369 which makes it cheaper than the Olympus with the cost of the hood. The Panasonic only comes in black finish while the Olympus comes in either silver (here) or black (here)

Image quality comparison
As a reminder, all tests are made on a tripod to avoid any camera shake. The first image shows the full scene pictured and the crops presented are to see the center portion sharpness. For this test, I made comparison at the followings  apertures : Full, F2.0, F 2.8. F4.0, F5.6, F8.0 and F11. I did not test the smaller apertures as the diffraction in such lenses becomes too big and, on that subject, I think that having a F22 aperture is not a good idea
At full aperture, the difference is mostly visible in the corners. The olympus is a tad more contrasty and while the resolution in the center is comparable, the Panasonic is more consistent across the frame as clearly visible here :

Oly 45mm f2.0

Pana 42.5mm F2.0

Now at F 8.0 the difference is negligible in the corners as shown hereunder :

Oly 45mm F8.0

Pana 42.5mm F 8.0

It is worth noticing that both lenses take very well a small amount of sharpening.

Verdict
I must admit I am very surprised by the results. I was so surprised that I rechecked the lenses and created a lot of files for this review. In a nutshell, this is what comes of this test : Both lenses are very good performers in the  center but in the corner of the frame it is a different story. From full aperture until at least 5.6 the Panasonic is MUCH sharper than its Olympus counterpart. From f 8.0 onwards the difference in the corner becomes moot and the Olympus is a little bit better on the whole frame at F11 compared to its rival. I would not use either lens beyond F11 unless being forced to.
Please bear in mind that this test only looks at the sharpness and does not address other issues like distortion (most likely not an issue on a lens of this type). For vignetting though, it maybe a small issue at largest apertures if you use the Panasonic lens on an olympus body or vice-versa. If both lenses and the camera are of the same make it won’t matter as the vignetting will be auto-corrected by the in-camera software.
Finally, I am posting some examples of both lenses used in the high res mode offered on the Olympus EM5 markII. Speaking of the EM5 mark II, it is worth noticing that this model went down in price recently to a very reasonable $999 for the body only. The camera can be purchased here (silver) & here (black).

Conclusion
One cannot prevent from being impressed of the image quality that can be achieved by both lenses , especially between f5.6 and f8.0. Here are the corresponding crops :

Oly 45mm f8

Pan 42.5mm f8

At full aperture and at F2.0 the difference of sharpness in the corners between the two lenses are quite visible (keep in mind this is a low resolution here . when you look at the 50% size at 300 dpi the difference is very visible :

Oly 45mm f2.0

Pana 42.5mm f2.0

You can see the links for both lenses in the first section of this article. These are the best US prices for the official US version. If you are on a budget and do not mind a “import”(grey market) version, both lenses can be had for a even cheaper price :Only $245 for the Olympus (here) and $312 for the Panasonic 1.7/42.5mm (here). The Olympus hood can be found here  (silver version).
Although I currently own both lenses and use only Olympus m4/3rd bodies, I prefer the Panasonic. Thinner lens with its (included hood) better performance across the frame until f8.0 to start with. To be thorough I have another reason for which I prefer the Panasonic to the Olympus though I realize that lots of readers would probably not see my point. I shoot a lot of models full length in small spaces (hotel rooms) for instance. While the difference in focal length may not look like much on paper in real life it often makes a difference in getting the composition you want in crowded places. If you shoot your subject mostly outdoors, it probably will not matter as much to most photographers.
One thing is for sure : I cannot think of a single reason why one of these 2 lenses would be not part of the equipment of any serious micro 4/3rd user. Sure there are in the m4/3rd system sharper and better built lenses like the Olympus 1.8/75mm (here) or the Panasonic Nocticron 1.2/42.5mm (here) or the recently released Olympus 2.8/40-150mm pro zoom (here) . But of course such lenses are by their price , size ad weight are most specialized tools.

If you are interested in buying one of these two lenses I will appreciate your using one of the links provided  in this article which help support this site at NO extra cost to you. Thank you for your support.
Later on this week, I will publish an article about the Ricoh GR II.