Bad Global News
World conditions look uncertain, and less friendly to Central American economies. Global uneasiness has been exacerbated by rising populist movements, and events like Brexit, and the election of Donald Trump. On the positive side, interest rates could continue to gradually climb, along with international commodity prices, though these latter effects are still unclear, what with such actions as OPEC’s recent decision to cut production.
El Salvador made modest advances toward tackling its main economic challenges in 2016. Economic activity is growing modestly, with family remittances one important driver. No significant action has been taken to stoke insufficient dynamism, increase investment or foster FDI. Fiscal disequilibrium has been tackled via important though still partial measures. These are suited only to solving very short-run problems, just enough to avoid the imminent liquidity crisis that threatened public finances in Q4. That situation led international rating agencies to downgrade Salvadoran sovereign debt in H2, keeping their outlook negative.
Recent economic indicators in Guatemala continue to show economic activity slowdown. The monthly index (IMAE), trend cycle, was up 2.7% y/y as of October, while the original series was up just 2.3% y/y. The annual growth rate of the trend cycle index has been below 3% since February, confirming the lackluster behavior of production activity. With a population growth rate of around 2.3% per year, annual real GDP growth of about 3% is insufficient to address development challenges.
Costa Rican macroeconomic conditions depict 2016 as a good year, particularly in terms of the main short-and-medium term vulnerabilities we’ve continuously mentioned. Economic activity is growing reasonably well, given recent standards and world conditions. Fiscal indicators have improved, contrary to expectations. Main prices remain low (particularly interest rates and inflation), and poverty has fallen. But vulnerabilities persist: the fiscal deficit, public debt and unemployment all continue to run high. The FX market remains tight, and incentives for dollarization have reemerged. On the domestic front, recent electoral developments significantly reduce the probability of negotiating tax bills in Congress, which adds to fiscal uncertainty, and macroeconomic vulnerabilities.
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