Growth and inflation trends mixed
The Costa Rican economy is evolving better than expected, despite the adverse external conditions. Recent reversal signals in the downward trend of economic activity during H1 2022 suggest that real GDP growth could be higher than projected. The main driver relates to FTZ exports, including a new impulse from electronic devices. Fiscal consolidation is on the way, with comfortable accomplishment of the targets agreed upon in the IMF program. Trends suggest that the primary result would easily turn to positive, contrary to our July forecast, while the global deficit would be lower than previously estimated. Required financing for fiscal needs via bonds to be placed in the international market has been delayed, although some recent signs in Congress are positive, at least for $1.5 billion, though not necessarily for the requested $6 billion authorization. The FX market was subject to pressures in Q2, but conditions have relaxed in Q3, bringing the exchange rate down substantially. Inflation remains high, while the CPI fell in September, and we expect it to continue dropping in coming months.
El Salvador’s macroeconomic indicators showed little change from the detailed analysis included in our last-month outlook revision, as expected. Economic activity is moving fast towards the pre-pandemic rhythm of 2%-2.5% y/y, in real terms. The main drivers of growth determine that evolution and are associated with external transactions: foreign remittances and total exports. Fiscal results continue improving slowly, although the 12-month global deficit is still very high, considering the financing restrictions confronted by the government. Those restrictions would force a much smaller gap in public finances. The external perception of government payment capacity improved a bit after the public debt buyback of September, but the EMBI continues as one of the largest in Latin America. Inflation remains high but would recede as long as commodity prices drop.
In Guatemala, the global economic slowdown is affecting performance. New IMF estimates put the economic growth outlook near 3% for next year. This is not a surprise, considering the higher-than-expected international inflation, low growth and high interest rates. Presidential elections will take place in June 2023. The preference for potential presidential candidates is focused on four political figures. The economy is quite different today from that of the previous year. A slower pace is expected for H2. The exchange rate has increased 1.7% since January 1st, and since September 1st has devalued 1.3%. This situation is linked to seasonal factors. Inflation remains the main concern for Guatemalans. CPI was up 9% in September, the highest inflation rate since December 2008.
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