Bracing for Trump, after a reasonable 2024
In Costa Rica, political confrontation between the Executive branch and Congress and the Judiciary persists. President Rodrigo Chaves’ style, which resembles that of other authoritarian and populist presidents in this hemisphere, also shares with those leaders’ popularity in the polls. Consequences for the medium and long-term economic outlook have yet to be seen, although the history of the last century or two doesn’t offer enough successful stories from authoritarian political models. Uncertainty over U.S. commercial policies and migration, among other issues, is expected to bring challenges for trade, FDI and foreign remittances to Central America. Economic activity is decelerating slowly, meaning that real GDP growth by yearend could be close to 4% y/y. Most macroeconomic results are deemed good in the short run, except for what we consider out-of-focus management of monetary policy. Challenges from expected turbulence likely to affect trade and investment international flows, as well as duties such as reinforcing fiscal discipline and fostering growth of domestic-based economic activities, will require public policy attention in 2025 and 2026.
El Salvador could be hard hit if expected new policies on trade, migration and U.S. companies’ investment abroad materialize after the new U.S. government steps into office on January 20th, 2025. This is the CA country most dependent upon the United States in terms of merchandise exports, foreign remittances and FDI. President Nayib Bukele remains very popular, a good point of departure for the hard economic measures he announced when took office in June 2024. An IMF agreement was finally announced on December 18th. The Extended Fund Facility for $1.4 billion for 40 months will support the government’s reform agenda and is pending Executive Board approval. A catalyst effect for additional financial support from other multilateral financial institutions is expected to raise a total package of about $3.5 billion over the program period. Measures for 1.5% of GDP have already been included in 2025 budget, to reduce the wage bill, spending on goods and services and transfers to municipalities. Economic activity deceleration continued per data to September, suggesting that growth could fall short of our forecast 2.6% y/y growth rate, as well as of other more optimistic estimates of the IMF and El Salvador’s Central Bank of Reserve. The direct influence of merchandise exports and foreign remittances is linked to that development. The forecasted weakening of public finances could be even deeper if observed trends to October persist. Recently inflation entering the negative quadrant will be much lower than expected.
Guatemala concludes 2024 with a solid macroeconomic performance and has one of the most stable economies in Latin America. Despite a second consecutive year of low exports, GDP growth remained robust. Family remittances continue to play a crucial role as the main force driving private consumption. In the first 11 months of 2024, remittances increased 8.4% y/y, slightly below the 9.8% observed during the same period in 2023. On the fiscal front, increased revenues combined with reduced expenditures helped narrow the already-low fiscal deficit. Inflation in 2024 followed a downward trend. Cumulative inflation stood at 1.5%, a significant drop from the 4% recorded during the same period in 2023. The rebound in economic activity, particularly in key sectors such as retail, manufacturing and financial services, presents good headwinds for 2025.
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