Challenging times
Costa Rica experienced a deceleration in several key macroeconomic indicators during H1 2024. According to latest official data, economic activity growth slowed due to a combination of external and internal factors. Externally the economic situation was stable, with low growth rates of most trading partners, weak international trade and high interest rates. Internally, economic results were mixed by the effects of the reduction in the exchange rate, the restrictive monetary policy and difficulties experienced by economic agents. The next 18 months will be challenging for Costa Rica. Consumers and business will keep dealing with the effects of high interest rates, a weak global growth and less dynamic private expenditure and investment. Political instability risks have increased, with frequent confrontations between the government and other sectors reducing confidence. We have revised real GDP growth projections for 2024 downward, from 3.8% y/y to 3.6% y/y. For 2025 we have also adjusted our projections downward, from 4.1% to 3.8% y/y. This lower growth rate projection is sustained by the fact that domestic companies will have to deal with the negative effects of the exchange rate decline, lower consumer confidence, limited family purchasing power and falling private investment.
The Guatemalan economy grew favorably in H1 2024, driven by strong remittances and dynamic domestic consumption. The Monthly Index of Economic Activity grew 3.7% on average in the first five months of the year, and 4.4% y/y in May. Despite global economic uncertainties, sound macroeconomic policies and diversification efforts helped maintain stability, and fostered a positive environment. Moody´s in July maintained Guatemala’s Ba1 credit rating, with a stable outlook. The country’s political situation was characterized by implementation of reforms aimed at improving transparency, and curbing corruption. President Bernardo Arevalo has visited several European countries since February and has maintained close ties with the United States. Arevalo is focusing on attracting new FDI, and on increasing the country´s role in preventing irregular migration.
In El Salvador, economic activity has been losing momentum in H1 2024, due to the fall of merchandise exports and the slower pace of foreign remittances. Tourism inflows have been the dynamic sector, while investment attraction is still pending to react to the recent government stimulus announced in previous months. Fiscal conditions worsened due to expenditures expansion, despite relatively high (although decreasing) rates of change of government revenues. Inflation returned to normal levels for a dollarized economy. Food prices’ resistance to falling in line with the general price index led President Nayib Bukele to threaten importers, distributors, retailers and wholesalers of food: he warned them to stop abusing the Salvadoran people, or to not complain later.
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