COSTA RICA: February elections are key
Costa Ricans will vote on February 4th to elect a new president, two vice presidents and 57 legislators. There are 13 presidential candidates, and the electoral process could last until April 1st, when a runoff between the two top candidates will take place if no one wins least 40% of the vote in the first round. The polls suggest that a runoff is a near certainty -- but it’s not yet clear who will run against whom, since 29.5% of those planning to vote say they haven’t decided who they’ll vote for.
What’s clear is that the next president will face a very difficult fiscal situation. Under a passive scenario, without major fiscal actions, the central government will end 2018 with a financial deficit in the 6.5%-6.9% of GDP range, a primary deficit of 3.0%-3.4% and debt above 52.5% of GDP. There are two questions about that scenario. First, there’s the possibility of financing the deficit, and what that will cost. Second, there’s the domestic adjustment required to face a financial shortage.
In Guatemala, 2017 was a year of moderate growth and relative stability. It was also a year when some indicators, mainly growth and inflation, deteriorated. Bank of Guatemala estimates real GDP growth at 2.8%, the lowest rate since the Great Recession, when the economy grew just 0.5%. Yearend inflation closed at 5.68%, above the Central Bank’s 3%-5% target range, and the highest rate since 2011, when it reached 6.2%. Those figures were logged in a year when the economy received the most private remittances ($8.2 billion, up 14.4% y/y), closed with the highest level of net international reserves ($11.8 billion), and showed a current account surplus (2.1% of GDP), and a fiscal deficit of just 1.3% of nominal GDP.
El Salvador shows little change in economic performance from 2016. It’s still early to get figures to December for most macroeconomic indicators, except for some financial variables, like inflation and interest rates. But we can expect similar results to previous periods: modest economic growth, low inflation, consumer spending supported by external factors, mainly foreign remittances, fragile fiscal finances, a risky level of public debt and weak business sector confidence, which doesn’t favor private investment. The outlook continues to be cloudy, with new sources of uncertainty: the results of congressional elections in March 2018, with eventual changes in the weight of political forces; the implications for presidential elections in February 2019; and the consequences of TPS termination.
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