COSTA RICA: Uncertainty Is the flavor of the day
Costa Rica’s political environment looks unsatisfactory, a situation that affects our short-term economic outlook. Right now, uncertainty is the flavor of the day. The results of the February 4th presidential and congressional elections didn’t curb either uncertainty or negative expectations. In the run-up to the April 1st second round, the outlook for future economic policy is dark. Adding in the constraints of several years of high fiscal deficits, and unfavorable external conditions for financing the domestic gap, and we’re led to project more economic slowdown, an inflation increase above the target range and higher interest rates and devaluation over the term of our outlook. We expect political parties may reach consensus in H2 to approve tax and expenditure measures to reduce the fiscal deficit.
El Salvador shows little change in virtually all areas, particularly in the required diligence to face its fiscal problem, and virtual economic stagnation. Worries persist over the possible consequences over migration, once the deadline for the canceled U.S. Temporary Protection Status nears. Final macroeconomic results for 2017 were equal to our outlook for the fiscal deficit and the inflation rate. There are no definite estimates of GDP yet. Deviations appear in external trade, resulting in a higher trade deficit than our forecast. They are also reflected in some monetary aggregates (less increase of credit to the private sector and more of money supply), under the influence of crowding-out by the fiscal deficit and the scaling up of foreign remittances that increased banking deposits unexpectedly.
In Guatemala, annual inflation declined in January 2018 from December 2017. The monthly rate was in negative territory (-0.4%), taking the annual rate (4.71%) back to the Bank of Guatemala’s target range.Prices in food and non-alcoholic beverages declined in January (-0.99% m/m), as some markets tended to regularize, after the supply problems seen in Q4 2017. Economic activity has been on the lower side of the cycle.Real GDP grew only 2.8% last year, and the Monthly Index of Economic Activity (IMAE), trend cycle, increased 3% y/y as of December 2017, down from 3.3% in December 2016.Relatively low economic growth and an inflation rate again within the Bank of Guatemala’s target range supports the decision made in late November to cut the policy rate to 2.75%.
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