Challenges ahead, with the global environment a major factor
Guatemala’s economy remained resilient in H1 2026, despite weaker global growth, geopolitical tensions and tight financial conditions. Economic activity expanded by 4.4%, supported by private consumption, remittances, financial-sector stability and stronger public investment. Remittance inflows reached $15.4 billion through July, although growth slowed to 6.6%, while international reserves rose to $33.4 billion, around 24% of GDP. Inflation increased to 2.7% in July, mainly because of higher transportation costs, and the fiscal deficit widened, as expenditure outpaced revenue. Even so, both pressures remained manageable. GDP is projected to grow by 3.9% in 2026 and 4% in 2027, supported by services, consumption, and investment. The external position remains a major strength: current account surpluses should stay high, and reserves should continue accumulating. Fiscal expansion will lift the deficit to 2.5% of GDP in 2026 and 2.9% in 2027. Key risks include a sharper U.S. slowdown, tighter trade or migration policies, energy-market disruptions and election-related uncertainty. Turning stability into faster, more inclusive growth will require better infrastructure, stronger institutions, improved public investment execution, productivity reforms, more formal employment and less dependence on remittances. Nearshoring offers additional upside, if competitiveness, logistics and the rule of law improve substantially over the medium term.
Costa Rica is experiencing an economic activity slowdown, due to external and domestic factors. Internationally, conditions are unfavorable. Uncertainty remains high, due to the constant ups and downs in negotiations to halt the war in Iran, raising the risks of higher oil and other commodity prices. Moreover, the increase in tariffs on Costa Rica exports imposed by the U.S. government, at a higher level than those applied to other Central American countries, affects competitiveness and goes in decelerating direction. Domestically, the deterioration of the government's relations with the other branches of government and with opposition parties has intensified, particularly sharply with regard to the judiciary. The tendency to weaken checks and balances creates uncertainty over the country's future legal security. Our monthly reports have simultaneously warned persistently about the loss of competitiveness due to the severe currency appreciation since 2023, along with negative headline inflation in most of this period. The Central Bank made a step in the right direction in late July, reducing the monetary policy rate to cope with economic slowdown, while inflationary risks look remote.
El Salvador’s economic trends continue along the lines of our June and July reports: a) sound pace of economic activity driven by the construction sector; b) weak support from traditional external sources, such as merchandise exports and foreign remittances; c) tourism contributions that fell both in Q1 2025 and Q1 2026; d) expansion of total liquidity in the banking system at a low double-digit pace, above the moderate change of credit to the private sector; e) FDI that remains moderate; and f) inflows in the errors and omissions line are very large. President Nayib Bukele will run again in the presidential elections of February 2027, according to the post for his political party. Bukele continues to enjoy great popular support, despite critical voices here and abroad over the dismantling of checks and balances and weakening democracy.
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