Bad Overshadowing (Some) Good
Costa Rica’s short-term indicators continue to show economic activity slowdown, in line with our outlook for 2017. Lower capital inflows from abroad are one reason. The severe monetary contraction after the May FX turbulence is also reducing financial resources, thereby dampening consumer spending. Uncertainty from external shocks like migration and U.S. trade policies should diminish, as little has changed so far. But it persists in the outlook for the fiscal deficit, coupled with the proximity of the February 2018 general elections. Surveys of consumer and business confidence confirm this. All of these negative factors outweigh the expansionary bias of greater public spending and fiscal deficit compared to last year.
El Salvador is showing a better face, after the arrival of a long-awaited political consensus to approve pension reform. Hope for further advances to conciliate the radically opposed postures over fiscal issues is the immediate corollary. The changes to the pension system were not as substantial as needed, but seem to be the feasible ones for now. Along with restructuring of government debt with the private pension trust, and authorization for new debt to meet official obligations for the rest of 2017, it will alleviate cash problems for some five years. A deeper reform, however, will have to address several issues, such as broadening the pensioner base, and revising both benefits and minimum retirement ages.
In Guatemala, political instability is taking its toll.On October 18th, Standard and Poor’s downgraded the country´s long-term foreign currency rating to BB- from BB, over political instability and weaker economic growth prospects.That came after more than a month of uncertainty over a possible accusation of President Jimmy Morales for his role as his party’s general secretary during the political campaign, and some clouds over financial contributions.The situation is also affecting private sector expectations, as reflected in Bank of Guatemala’s September survey.The private sector confidence index dropped almost 20 points in a month, to 25, in September.This is the lowest reading since the 21.67 of August 2015 -- when former president Otto Pérez resigned amid corruption charges.Such expectations will not contribute to an acceleration of economic activity, which was low during Q2.Bank of Guatemala´s preliminary Q2 GDP estimate was just 2.3% y/y, down from 3.7% in Q2 2016, and its lowest rate for five years.
Now read on...
Register to sample a report