Growth moderating, with inflation trend mixed
El Salvador’s economic evolution continues along the lines we forecast in our outlook revision of September 2022. Inflation is still high, but slowly descending. Economic activity estimated by the Central Bank’s monthly index has decelerated from the highs of H1 2021, and stopped falling in H2 2022, according to the latest figures of August 2022. Fiscal indicators show parsimony, with efforts concentrated on the Eurobond maturing in January 2023. The political scenario remains much the same as observed all year. President Nayib Bukele continues to be very popular, which supports the persistence of several policy decisions heavily criticized abroad, such as the exception regime to fight “maras,” the legal tender for bitcoin, the lack of actions to assure medium-term fiscal adjustment, and the absence of explicit moves to improve political and financial relations with multilaterals, other governments and the international financial community. This time we will provide information about the government’s proposed budget.
Costa Rica´s 2023 public finances are performing better expected. The latest fiscal data released by the Ministry of Finance revealed good fiscal news. President Rodrigo Chaves has reaffirmed his commitment to fiscal consolidation but insists on renegotiating the actual EFF program with the IMF. He presented to Congress new proposals to reduce public debt, some with controversial provisions. Despite the delay in the approval of Eurobonds, the debt maturity payments of $1 billion in January 2023 will be paid without major problems. Recent data published by the Central Bank in its last Monetary Policy Report in 2022 confirmed what we explained in our last report: better performance of domestic production in 2022. We do not see the possibility of a recession in Costa Rica in 2023. But we expect a more moderate pace of GDP and national income expansion. The recent volatility and appreciation of the colon present challenges. There are few options for companies that want to hedge against exchange rate fluctuations.
Guatemala´s GDP growth during H1 remained strong, despite slower global growth and rapid increase in local and international prices. According to the latest figures published by the Bank of Guatemala, GDP grew 4.3% y/y during H1. Growth will be slower than projected at the start of 2023. A scenario of slower increase in exports and remittances is more realistic in coming months. On the fiscal front, authorities are facing pressures to maintain subsidies on prices of some goods. After the recent announcement of a new increase in gasoline prices, cargo drivers erected more than a dozen roadblocks on several main roads. After several days of protests, the government called a meeting with the cargo drivers to seek a solution. Inflation remains the main concern of the public. In October, the increase in the CPI totaled 9.7% y/y, the highest in Central America after Nicaragua.
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